<PAGE>
As filed with the Securities and Exchange Commission on August 12, 1997
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
EMERGING COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4813 66-0547028
(PRIMARY STANDARD (I.R.S.
(STATE OR OTHER INDUSTRIALCLASSIFICATION EMPLOYERIDENTIFICATION
JURISDICTION CODE NUMBER) NUMBER)
OFINCORPORATION OR
ORGANIZATION)
---------------
CHASE FINANCIAL CENTER
P.O. BOX 1730
ST. CROIX, U.S. VIRGIN ISLANDS 00821
TELEPHONE: 340-777-7700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JEFFREY J. PROSSER
CHASE FINANCIAL CENTER
P.O. BOX 1730
ST. CROIX, U.S. VIRGIN ISLANDS 00821
TELEPHONE: 340-777-7700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
ROGER MELTZER, ESQ.
CAHILL GORDON & REINDEL
80 PINE STREET
NEW YORK, NEW YORK 10005
TELEPHONE: (212) 701-3000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box:
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ---------------------------------------------------------------------------------------------
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED SHARE(1) PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01
per share........... 10,959,131 $13.2484 $145,190,951 $45,372.17
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
---------------
THE REGISTRANT HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ATLANTIC TELE-NETWORK, INC.
CHASE FINANCIAL CENTER
P.O. BOX 1730
ST. CROIX, U.S. VIRGIN ISLANDS 00821
(809) 777-8000
---------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
To the Stockholders of Atlantic Tele-Network, Inc.:
Notice is Hereby Given that a Special Meeting of Stockholders (including any
adjournments or postponements thereof, the "Special Meeting") of Atlantic
Tele-Network, Inc., a Delaware corporation (the "Company"), will be held on
, 1997 at 10:00 a.m., local time, at [location of Special Meeting], for the
following purposes, which are more fully described in the accompanying Proxy
Statement-Prospectus:
To consider and vote upon a single, unified proposal relating to the
proposed reorganization of the Company (the "Transaction"):
A. to approve and adopt the Subscription Agreement, dated as of August
11, 1997 (as such may be amended, supplemented or modified from time to
time, the "Subscription Agreement"), between the Company and Emerging
Communications, Inc., a Delaware corporation and newly formed wholly owned
subsidiary of the Company ("ECI"), pursuant to which the Company will
transfer certain assets and liabilities to ECI so that all of the assets,
liabilities and operations of (i) the Company's business and operations in
the Virgin Islands will be owned by ECI and (ii) the Company's business and
operations in Guyana will continue to be owned by the Company;
B. to approve and adopt the Repurchase and Recapitalization Agreement,
dated as of August 11, 1997 (as such may be amended, modified or
supplemented from time to time, the "Recapitalization Agreement"), among
the Company, Cornelius B. Prior Jr., individually and as trustee of the
1994 Prior Charitable Remainder Trust (the "Trust"), and Jeffrey J.
Prosser, pursuant to which the Company will repurchase 416,998 shares of
common stock of the Company, par value $.01 per share ("Company Common
Stock"), owned by Mr. Prior and 348,564 shares of Company Common Stock
owned by the Trust at a repurchase price of $22.7284 per share, Mr. Prior
will exchange all of his remaining 2,927,038 shares of Company Common Stock
for a like number of shares of a new class of common stock of the Company
to be designated Class B Common Stock, and Mr. Prosser will exchange all of
his 3,325,000 shares of Company Common Stock for a like number of shares of
a new class of common stock of the Company to be designated Class A Common
Stock;
C. to approve and adopt the Agreement and Plan of Merger, dated as of
August 11, 1997 (as such may be amended, supplemented or modified from time
to time, the "Merger Agreement"), between ATN Merger Co., a newly organized
Delaware corporation and a wholly owned subsidiary of the Company
("Mergerco"), and the Company, pursuant to which (i) Mergerco will be
merged with and into the Company (the "Merger"), (ii) each share of Company
Common Stock (but not the newly created Class A Common Stock and Class B
Common Stock to be issued prior to the Merger to Mr. Prosser and Mr. Prior,
respectively, pursuant to the Recapitalization Agreement) will be converted
into the right to receive four-tenths (0.4) of a share of Company Common
Stock and one share of ECI Common Stock; (iii) the outstanding shares of
Class A Common Stock of the Company held by Mr. Prosser will be converted
into the right to receive in the aggregate 5,704,231 shares of ECI Common
Stock, and (iv) the outstanding shares of Class B Common Stock of the
Company held by Mr. Prior will be converted into the right to receive in
the aggregate 2,807,040 shares of Company Common Stock;
D. to approve an amendment (the "Charter Amendment") to the Certificate
of Incorporation of the Company, as amended, which will create and
authorize a new class of Class A Common Stock of the Company and a new
class of Class B Common Stock of the Company to be issued prior to the
Merger to Mr. Prosser and Mr. Prior pursuant to the Recapitalization
Agreement;
E. to approve the following agreements attached as exhibits to the
Subscription Agreement (as they may be amended, supplemented or modified
from time to time): (i) the Non-Competition Agreement, (the "Non-
Competition
<PAGE>
Agreement"), among the Company, ECI and Mr. Prosser, (ii) the Indemnity
Agreement (the "Indemnity Agreement"), among the Company, ECI, Mr. Prior
and Mr. Prosser, (iii) the Technical Assistance Agreement (the "Technical
Assistance Agreement"), among the Company, Atlantic Tele-Network, Co.,
Virgin Islands Telephone Corporation, and Vitelcom Cellular, Inc., (iv) the
Tax Sharing and Indemnification Agreement (the "Tax Sharing and
Indemnification Agreement"), among the Company, ECI, Mr. Prior and Mr.
Prosser and (v) the Employee Benefits Agreement (the "Employee Benefits
Agreement") between the Company and ECI; and
F. to approve the transactions contemplated by the foregoing agreements
and the Charter Amendment.
II. To transact such other business, including, without limitation, the
adjournment of the Special Meeting (including an adjournment of the Special
Meeting to allow for the fulfillment of certain conditions precedent to the
Transaction) as may properly come before the Special Meeting or any
adjournments or postponements thereof.
The Subscription Agreement, Recapitalization Agreement, Merger Agreement,
Charter Amendment, Non-Competition Agreement, Indemnity Agreement, Technical
Assistance Agreement, Tax Sharing and Indemnification Agreement and Employee
Benefits Agreement will all be voted upon together as part of the Transaction,
and none of these agreements will be effected separately.
The Board of Directors of the Company has fixed the close of business on
, 1997 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the Special Meeting and any
adjournments or postponements thereof. Only holders of record of shares of the
Company Common Stock at the close of business on the Record Date are entitled
to notice of, and to vote at, the Special Meeting. A list of such stockholders
will be available for examination at [location of Special Meeting] for a
period of at least ten days prior to the Special Meeting.
A Proxy Statement-Prospectus containing more detailed information with
respect to the matters to be considered at the Special Meeting accompanies
this notice.
Your vote is very important regardless of how many shares of Company Common
Stock you own. Whether or not you plan to attend the special meeting, you are
requested to sign, date and return the enclosed proxy without delay in the
enclosed postage-paid envelope. You may revoke your proxy at any time prior to
its exercise. If you are present at the special meeting or any adjournments or
postponements thereof, you may revoke your proxy and vote personally on the
matters properly brought before the special meeting.
By Order of the Board of Directors,
Jeffrey J. Prosser
Secretary
St. Croix, U.S. Virgin Islands
, 1997
IMPORTANT
All stockholders are cordially invited to attend the Special Meeting in
person.
Whether or not you plan to attend the Special Meeting in person, in order
to assure your representation at the meeting, you are urged to complete,
sign, and date the enclosed proxy card, which is being solicited by the
Board of Directors, and promptly return it in the self-addressed return
envelope enclosed for that purpose. The envelope requires no postage if
mailed in the United States. Any stockholder who signs and sends in a proxy
card may revoke it at any time prior to the vote at the Special Meeting by
following the procedures set forth above and in the accompanying Proxy
Statement-Prospectus.
DO NOT SEND ANY STOCK
CERTIFICATES AT THIS TIME.
<PAGE>
PROXY STATEMENT-PROSPECTUS
PROSPECTUS
EMERGING COMMUNICATIONS, INC.
SHARES OF COMMON STOCK
AND
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
OF
ATLANTIC TELE-NETWORK, INC.
TO BE HELD ON , 1997
---------------
This Proxy Statement-Prospectus (the "Proxy Statement-Prospectus") is being
furnished to the stockholders of Atlantic Tele-Network, Inc., a Delaware
corporation (the "Company"), in connection with the solicitation of proxies by
the Board of Directors of the Company (the "Company Board") in the form
enclosed to be used at the Company's special meeting of stockholders (the
"Special Meeting") to be held on , 1997, at the time and place and for
the purposes set forth in the Company's accompanying Notice of Special Meeting
of Stockholders. This Proxy Statement-Prospectus is first being mailed to the
Company's stockholders on or about , 1997. This Proxy Statement-
Prospectus relates to the proposed reorganization of the Company, whereby the
Company will transfer certain assets and liabilities to Emerging
Communications, Inc., a Delaware corporation and newly formed wholly owned
subsidiary of the Company ("ECI"), and the Company will undertake an amendment
to its certificate of incorporation (the "Charter Amendment"), a
recapitalization and a merger (the "Merger") with ATN Merger Co., a newly
organized Delaware corporation and a wholly owned subsidiary of the Company
("Mergerco"), pursuant to which the Company will repurchase 416,998 shares of
Company Common Stock owned by Cornelius B. Prior Jr. and 348,564 shares of
Company Common Stock owned by the 1994 Prior Charitable Remainder Trust (the
"Trust") at a repurchase price of $22.7284 per share, Mr. Prior will exchange
all of his remaining 2,927,038 shares of Company Common Stock for a like
number of shares of Class B Common Stock, and the outstanding shares of common
stock of ECI, par value $.01 per share ("ECI Common Stock") will be
distributed to Jeffrey J. Prosser and the remaining stockholders of the
Company (other than Mr. Prior). Collectively, the above transactions herein
are referred to as the "Transaction."
This Proxy-Statement-Prospectus also constitutes a prospectus of ECI with
respect to the shares of ECI Common Stock to be distributed to holders of
Company Common Stock and Class A Common Stock in the Merger.
Pursuant to the Transaction, (a) the Company has entered into a Subscription
Agreement, dated as of August 11, 1997 (as such may be amended, supplemented
or modified from time to time, the "Subscription Agreement"), with ECI,
pursuant to which the Company will transfer certain assets and liabilities to
ECI so that all of the assets, liabilities and operations of (i) the Company's
business and operations in the Virgin Islands will be owned and operated by
ECI and (ii) the Company's business and operations in Guyana will continue to
be owned and operated by the Company; (b) the Company, Mr. Prior, individually
and as trustee of the Trust, and Mr. Prosser have entered into a Repurchase
and Recapitalization Agreement, dated as of August 11, 1997 (as such may be
amended, modified or supplemented from time to time, the "Recapitalization
Agreement"), pursuant to which the Company will repurchase 416,998 shares of
Company Common Stock owned by Mr. Prior and 348,564 shares of Company Common
Stock owned by the Trust at a repurchase price of $22.7284 per share, Mr.
Prior will exchange all of his remaining 2,927,038 shares of Company Common
Stock for a like number of shares of a new class of common stock of the
Company to be designated Class B Common Stock, and Mr. Prosser will exchange
all of his 3,325,000 shares of Company Common Stock for a like number of
shares of a new class of common stock of the Company to be designated Class A
Common Stock; (c) the Company has entered into an Agreement and Plan of
Merger, dated as of August 11, 1997 (as such may be amended, supplemented or
modified from time to time, the "Merger Agreement"), with Mergerco, pursuant
to which (i) Mergerco will be merged with and into the Company, (ii) each
share of Company Common Stock (but not the newly created Class A Common Stock
and Class B Common Stock to be issued prior to the Merger) will be converted
into the right to receive four-tenths (0.4) of a share of Company Common Stock
and one share of ECI Common Stock; (iii) the outstanding shares of Class A
Common Stock of the Company will be converted into the right to receive in the
aggregate 5,704,231 shares of ECI Common Stock, and (iv) the outstanding
shares of Class B Common Stock of the Company will be converted into the right
to receive in the aggregate 2,807,040 shares of Company Common Stock; (d) the
Company will amend (the "Charter Amendment") its Certificate of Incorporation,
as amended, to create and authorize the Company Class A Common Stock and the
Class B Common Stock to be issued prior to the Merger to Mr. Prosser and Mr.
Prior, respectively, pursuant to the Recapitalization Agreement; and (e) the
following agreements attached as exhibits to the Subscription Agreement (as
they may be amended, supplemented or modified from time to time) will be
entered into on or prior to the effective date (the "Effective Date") of the
Transaction: (i) the Non-Competition Agreement, among the Company, ECI, Mr.
Prior and Mr. Prosser (the "Non-Competition Agreement"), (ii) the Indemnity
Agreement, among the Company, ECI, Mr. Prior and Mr. Prosser (the "Indemnity
Agreement"), (iii) the Technical Assistance Agreement, among the Company,
Atlantic Tele-Network, Co., Virgin Islands Telephone Corporation, and Vitelcom
Cellular, Inc. (the "Technical Assistance Agreement"), (iv) the Tax Sharing
and Indemnification Agreement among the Company, ECI, Mr. Prior and Mr.
Prosser (the "Tax Sharing and Indemnification Agreement"), and (v) the
Employee Benefits Agreement, between the Company and ECI (the "Employee
Benefits Agreement").
THE COMPANY BOARD HAS UNANIMOUSLY (WITH MR. PRIOR AND MR. PROSSER
ABSTAINING) APPROVED THE TRANSACTION AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE TRANSACTION.
FOR MATTERS THAT SHOULD BE CONSIDERED WITH RESPECT TO THE TRANSACTION, THE
ECI COMMON STOCK ISSUABLE IN CONNECTION THEREWITH, AND THE COMPANY COMMON
STOCK THAT WILL REMAIN OUTSTANDING AFTER CONSUMMATION OF THE TRANSACTION SEE
"RISK FACTORS" BEGINNING ON PAGE 14 HEREOF.
It is expected that after the Transaction the Company Common Stock will
continue to be listed on the American Stock Exchange (the "AMEX") under the
symbol "ANK."
There has not been a trading market in ECI Common Stock. ECI has applied for
listing of the ECI Common Stock on the AMEX under the symbol " ."
---------------
THE SECURITIES TO BE ISSUED IN THE TRANSACTION HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS , 1997.
<PAGE>
The Transaction is conditioned upon, among other things, approval of the
Transaction at the Special Meeting by the holders of a majority of the
outstanding shares of Company Common Stock, completion of $17.4 million of
long-term financing by ECI or Atlantic Tele-Network, Co. (which will become a
subsidiary of ECI), receipt of a favorable ruling (the "Tax Ruling") from the
Internal Revenue Service ("IRS") that the transactions contemplated by the
Subscription Agreement and Merger Agreement will be tax-free for U.S. federal
income tax purposes to the Company and ECI and to the holders of Company
Common Stock and Class A Common Stock, and the absence of any material adverse
change in the businesses to be conducted after the Effective Date by the
Company and ECI, respectively.
Mr. Prosser and Mr. Prior, who in the aggregate own a majority of the
outstanding shares of Company Common Stock, have agreed to vote in favor of
approval of the Transaction at the Special Meeting.
The Transaction is currently expected to become effective as promptly as
practicable after the Tax Ruling is received. The Tax Ruling may be received
significantly later than the date of the Special Meeting. Each holder of
record of Company Common Stock on the Effective Date will be entitled to
receive one share of ECI Common Stock and four-tenths (0.4) of a share of
Company Common Stock for each share of Company Common Stock held on that date.
No fractional shares of Company Common Stock will be issued. In lieu thereof,
an Exchange Agent selected by the Company will aggregate all fractional shares
of Company Common Stock and sell such shares at the prevailing market prices.
Each holder of record of Company Common Stock who would otherwise have been
entitled to a fraction of a share of Company Common Stock will receive cash
(without interest) in an amount equal to such holder's proportionate interest
in the net proceeds from such sale or sales by the Exchange Agent.
After the Effective Date, (i) the "public stockholders" of the Company
(i.e., all stockholders other than Mr. Prior, the Trust and Mr. Prosser and
his family) will continue to hold approximately 43% of the Company Common
Stock (the same percentage as they hold on the date of this Proxy Statement-
Prospectus) and Mr. Prior will hold the remaining 57%, although the number of
shares of Company Common Stock will have been reduced by 60% from 12,272,500
shares to 4,909,000, (ii) the public stockholders will hold 5,254,900 shares
of ECI Common Stock (the same number of shares as they hold in the Company on
the date of this Proxy Statement-Prospectus) and (iii) Mr. Prosser will hold
the remaining 5,704,231 shares of ECI Common Stock, with the result that the
public stockholders' percentage interest in ECI will be approximately 48% and
Mr. Prosser's percentage interest will be approximately 52%.
After the Effective Date, the Company and ECI will be independent companies
with separate boards of directors and management. The Company will continue to
own the Company's Guyana operations. ECI will own the Company's Virgin Islands
operations.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...................................................... 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................... 2
SUMMARY.................................................................... 3
RISK FACTORS............................................................... 14
Risks Relating to the Transaction........................................ 14
Risks Relating to New ATN................................................ 15
Risks Relating to ECI.................................................... 17
THE SPECIAL MEETING........................................................ 19
Introduction............................................................. 19
Matters to be Considered................................................. 19
Company Board Recommendation............................................. 20
Voting Rights and Proxy Information...................................... 20
Solicitation of Proxies.................................................. 21
No Appraisal Rights...................................................... 21
Adjournment of the Special Meeting....................................... 21
THE TRANSACTION............................................................ 22
Background and Reasons for the Transaction............................... 22
Opinion of Investment Banker............................................. 24
Documentation for the Transaction........................................ 27
The Credit Facility...................................................... 32
Manner of Effecting the Transaction...................................... 33
Listing and Trading of ECI Common Stock.................................. 34
Listing and Trading of New ATN Common Stock.............................. 34
Expenses................................................................. 34
Conditions; Termination.................................................. 35
Certain U.S. Federal Income Tax Consequences............................. 35
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY.......................... 39
NEW ATN PRO FORMA FINANCIAL DATA........................................... 41
BUSINESS AND PROPERTIES OF NEW ATN......................................... 45
International Traffic.................................................... 45
Domestic Service......................................................... 47
Expansion Program........................................................ 48
Other Services........................................................... 48
Significant Revenue Sources.............................................. 48
Political Risk Insurance................................................. 49
Regulation............................................................... 49
Taxation--United States.................................................. 52
Taxation--Guyana......................................................... 53
Employees................................................................ 53
Properties............................................................... 54
SELECTED HISTORICAL FINANCIAL DATA OF ECI.................................. 55
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF ECI.............................................. 57
Introduction............................................................. 57
Results of Operations.................................................... 57
Liquidity and Capital Resources.......................................... 59
ECI PRO FORMA FINANCIAL DATA............................................... 61
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
BUSINESS AND PROPERTIES OF ECI............................................. 65
Local Service............................................................ 65
Access for Long-Distance Services........................................ 66
Other Services........................................................... 66
Significant Revenue Sources.............................................. 66
Physical Plant........................................................... 66
Cellular and Other Operations............................................ 67
Competition.............................................................. 67
Regulation............................................................... 71
Taxation--United States.................................................. 72
Taxation--U.S. Virgin Islands............................................ 73
Employees................................................................ 74
Properties............................................................... 74
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF THE COMPANY COMMON
STOCK..................................................................... 75
Principal Stockholders................................................... 75
Security Ownership of Directors and Officers............................. 76
DIRECTORS AND MANAGEMENT OF NEW ATN........................................ 77
Directors Of New ATN..................................................... 77
Executive Officers of New ATN............................................ 77
Executive Officers of GT&T............................................... 77
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF ECI COMMON STOCK........ 79
DIRECTORS AND MANAGEMENT OF ECI............................................ 80
Executive Officers and Directors of ECI.................................. 80
Directors Of ECI......................................................... 80
ECI Board Committees..................................................... 81
Officers of ECI.......................................................... 81
COMPENSATION OF EXECUTIVE OFFICERS OF ECI.................................. 82
Employment Agreement..................................................... 82
Stock Option Plans....................................................... 83
CERTAIN TRANSACTIONS....................................................... 83
PRICE RANGE AND DIVIDEND HISTORY OF THE COMPANY COMMON STOCK............... 84
DESCRIPTION OF NEW ATN CAPITAL STOCK....................................... 84
Authorized Capital Stock................................................. 84
New ATN Common Stock..................................................... 84
New ATN Preferred Stock.................................................. 84
DESCRIPTION OF ECI CAPITAL STOCK........................................... 85
Authorized Capital Stock................................................. 85
ECI Common Stock......................................................... 85
ECI Preferred Stock...................................................... 85
Antitakeover Effects of Certain Provisions of the Certificate and By-
laws.................................................................... 86
LEGAL MATTERS.............................................................. 89
EXPERTS.................................................................... 89
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
ANNEX A--SUBSCRIPTION AGREEMENT
ANNEX B--OPINION OF PRUDENTIAL SECURITIES INCORPORATED
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION
ECI has filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
ECI Common Stock issuable in connection with the Transaction. As permitted by
the rules and regulations of the SEC, this Proxy Statement-Prospectus does not
contain all of the information set forth in the Registration Statement or the
exhibits thereto. Statements contained herein concerning provisions of
documents are necessarily summaries of the documents, and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the SEC. Information regarding ECI can be found under "Risk
Factors," "ATN-VI Management Discussion and Analysis of Financial Condition
and Results of Operations" and "Business and Properties of ECI." Information
regarding the Company can be found under "Risk Factors" and "Business and
Properties of New ATN."
The Company is (and, upon the effectiveness of the Registration Statement,
ECI will be) subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files (or will file) reports, proxy statements and other
information with the SEC.
The Registration Statement and exhibits thereto filed by ECI, and the
reports, proxy statements, and other information filed with the SEC by the
Company and ECI can be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's Regional Offices located at 7 World Trade Center, 13th
Floor, New York, New York, 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago Illinois 60661. Copies of such materials may be obtained
by mail, at prescribed rates, from the Public Reference Section of the SEC at
450 Fifth Street, N.W. Washington D.C. 20549 or accessed electronically on the
SEC's Web site at (http://www.sec.gov). The Company Common Stock is listed on
the AMEX, and reports and other information concerning the Company can be
inspected at the AMEX, 86 Trinity Place, New York, New York 10006.
----------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THE PROXY STATEMENT-
PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED
BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ECI. THIS
PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED HEREBY, NOR DOES
IT CONSTITUTE THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN
OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT-
PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES AS CONTEMPLATED HEREIN SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY OR ECI SINCE THE DATE HEREOF, OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
1
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WITH
RESPECT TO THE COMPANY THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
SUCH DOCUMENTS INCORPORATED BY REFERENCE (EXCLUDING EXHIBITS THERETO, UNLESS
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS)
ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF
COMPANY COMMON STOCK TO WHOM THIS PROXY STATEMENT-PROSPECTUS IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST TO JEFFREY J. PROSSER, SECRETARY OF THE COMPANY,
CHASE FINANCIAL CENTER, P.O. BOX 1730, ST. CROIX, U.S. VIRGIN ISLANDS, 00821,
(340) 777-7700. IN ORDER TO INSURE TIMELY DELIVERY OF SUCH DOCUMENTS PRIOR TO
THE SPECIAL MEETING, ANY REQUEST SHOULD BE MADE BY , 1997.
The following documents filed by the Company with the SEC (File No. 0-19551)
are incorporated by reference into this Proxy Statement-Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997.
3. All documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to
the date of the Special Meeting shall be deemed to be incorporated by
reference herein and to be part hereof from the date any such document is
filed.
Any statement contained in any document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Proxy
Statement-Prospectus to the extent that a statement contained herein, or in
any subsequently filed document that is also incorporated or deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement-
Prospectus. Subject to the foregoing, all information appearing in this Proxy
Statement-Prospectus is qualified in its entirety by the information appearing
in the documents incorporated herein by reference.
Until , 1997 (90 days after the effective date of this Registration
Statement), all dealers effecting transactions in the ECI Common Stock may be
required to deliver a Proxy Statement-Prospectus.
2
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement-Prospectus. Reference is made to the more detailed information
contained or incorporated by reference in this Proxy Statement-Prospectus.
Stockholders of the Company are urged to read this Proxy Statement-Prospectus
and the Annexes attached hereto in their entirety. As used in this Proxy
Statement-Prospectus, unless the context otherwise requires: the "Company"
means Atlantic Tele-Network, Inc.; "New ATN" means the Company as it will be
constituted after the Effective Date; and "ECI" means, with respect to periods
prior to the Effective Date, the Company's business and operations in the
Virgin Islands (all of which is conducted by the Company's subsidiary, Atlantic
Tele-Network Co., a Virgin Islands corporation ("ATN-VI") and its
subsidiaries), and, with respect to periods subsequent to the Effective Date,
Emerging Communications, Inc., a Delaware corporation, which will own the
Company's Virgin Islands business and operations.
SPECIAL MEETING
Date, Time and Place of
Special Meeting............ The Special Meeting of stockholders of the
Company, will be held at [location of Special
Meeting], at 10:00 A.M., local time, on ,
1997.
Purposes of the Special At the Special Meeting the stockholders will be
Meeting.................... asked to consider and vote upon:
(1) a single, unified proposal relating to the
Transaction:
(a) to approve and adopt the Subscription
Agreement, pursuant to which the Company will
transfer certain assets and liabilities to
ECI so that all of the assets, liabilities
and operations of (i) the Company's business
and operations in the Virgin Islands will be
owned and operated by ECI and (ii) the
Company's business and operations in Guyana
will continue to be owned and operated by the
Company;
(b) to approve and adopt the Recapitalization
Agreement, pursuant to which the Company will
repurchase 416,998 shares of Company Common
Stock owned by Mr. Prior and 348,564 shares
of Company Common Stock owned by the Trust at
a repurchase price of $22.7284 per share, Mr.
Prior will exchange all of his remaining
2,927,038 shares of Company Common Stock for
a like number of shares of a new class of
common stock of the company to be designated
Class B Common Stock, and Mr. Prosser will
exchange all of his 3,325,000 shares of
Company Common Stock for a like number of
shares of a new class of common stock of the
Company to be designated Class A Common
Stock;
(c) to approve and adopt the Merger
Agreement, pursuant to which (i) Mergerco
will be merged with and into the Company,
(ii) each share of Company Common Stock (but
not the newly created Class A Common Stock
and Class B Common Stock to
3
<PAGE>
be issued prior to the Merger) will be
converted into the right to receive four-
tenths (0.4) of a share of Company Common
Stock and one share of ECI Common Stock;
(iii) the outstanding shares of Class A
Common Stock of the Company will be converted
into the right to receive in the aggregate
5,704,231 shares of ECI Common Stock, and
(iv) the outstanding shares of Class B Common
Stock of the Company will be converted into
the right to receive in the aggregate
2,807,040 shares of Company Common Stock;
(d) to approve the Charter Amendment to the
Certificate of Incorporation of the Company,
as amended, which will create and authorize
the Class A Common Stock and the Class B
Common Stock to be issued prior to the Merger
to Mr. Prosser and Mr. Prior, respectively,
pursuant to the Recapitalization Agreement;
(e) to approve the Non-Competition Agreement,
the Indemnity Agreement, the Technical
Assistance Agreement, the Tax Sharing and
Indemnification Agreement and the Employee
Benefits Agreement; and
(f) to approve the transactions contemplated
by the foregoing agreements and the Charter
Amendment; and
(2) to transact such other business, including,
without limitation, the adjournment of the
Special Meeting (including an adjournment of the
Special Meeting to allow for the fulfillment of
certain conditions precedent to the Transaction)
as may properly come before the Special Meeting
or any adjournments or postponements thereof.
Record Date................. , 1997
Voting...................... At the Special Meeting, each holder of record as
of the Record Date of the Company Common Stock is
entitled to one vote for each share held. The
affirmative vote of at least a majority of the
outstanding shares of the Company Common Stock as
of the Record Date is required to approve the
Transaction. As of the Record Date, Cornelius B.
Prior, Jr., held voting authority over 3,692,600
shares of the Company Common Stock, or
approximately 30.1% of the outstanding shares of
the Company Common Stock, and Jeffrey J. Prosser,
held voting authority over 3,011,250 shares of
the Company Common Stock, or approximately 25% of
the outstanding shares of the Company Common
Stock. Mr. Prior and Mr. Prosser together have
the necessary votes to ensure approval of the
Transaction, and they have agreed to vote their
shares in favor of the Transaction. See "The
Special Meeting--Voting Rights and Proxy
Information."
No Appraisal Rights......... Stockholders of the Company will not be entitled
to appraisal rights in connection with the
Transaction.
4
<PAGE>
THE COMPANIES PRIOR TO THE TRANSACTION
The Company................. Atlantic Tele-Network, Inc. is a Delaware
corporation that provides telecommunications
services primarily through its two principal
subsidiaries, the Guyana Telephone and Telegraph
Company Limited ("GT&T") and ATN-VI and its
primary subsidiary the Virgin Islands Telephone
Corporation ("Vitelco"). Vitelco provides
subscribers with local telephone service in the
U.S. Virgin Islands, access to long-distance
companies for interstate and international
telephone service, and provides those companies
with access to its local network. ATN-VI also
provides cellular telephone service and leases
telecommunications equipment in the U.S. Virgin
Islands through its other subsidiaries. GT&T
provides local service and domestic long-distance
telecommunications service within the Co-
operative Republic of Guyana and international
telephone service between Guyana and foreign
points.
Principal Executive Offices
of the Company............. The principal executive offices of the Company
are located at Chase Financial Center, P.O. Box
1730, St. Croix, U.S. Virgin Islands 00821. Its
telephone number is (340) 777-7700.
ECI......................... Emerging Communications, Inc. is a newly formed
Delaware corporation which, prior to the
Effective Date, will be a wholly owned subsidiary
of the Company with no operations.
Principal Executive Offices The principal executive offices of ECI are
of ECI..................... located at Chase Financial Center, P.O. Box 1730,
St. Croix, U.S. Virgin Islands 00821. Its
telephone number is (340) 777-7700.
THE TRANSACTION
Organization of Emerging
Communications, Inc........ The Company will transfer to ECI all of the
assets and liabilities associated with the
Company's business and operations in the Virgin
Islands and certain other assets and liabilities
in exchange for all of the capital stock of ECI.
Charter Amendment........... The Company will amend its Certificate of
Incorporation to create a class of Class A Common
Stock and a class of Class B Common Stock.
Repurchase and The Company will repurchase 416,998 shares of
Recapitalization........... Company Common Stock owned by Mr. Prior and
348,564 shares of Company Common Stock owned by
the Trust at a repurchase price of $22.7284 per
share, or $17,400,000 in the aggregate. Mr. Prior
will exchange all of his remaining 2,927,038
shares of Company Common Stock for a like number
of shares of a new class of common stock of the
Company to be designated Class B Common Stock,
and Mr. Prosser will exchange all of his
3,325,000 shares of Company Common Stock for a
like number of shares of a new class of common
stock of the Company to be designated Class A
Common Stock.
5
<PAGE>
Merger...................... Mergerco will be merged with and into the
Company, with the Company surviving in the
Merger. Pursuant to the Merger, each share of
Company Common Stock (but not the newly created
Class A Common Stock and Class B Common Stock to
be issued prior to the Merger) will be converted
into the right to receive four-tenths (0.4) of a
share of Company Common Stock and one share of
ECI Common Stock; the outstanding shares of Class
A Common Stock of the Company will be converted
into the right to receive in the aggregate
5,704,231 shares of ECI Common Stock; and the
outstanding shares of Class B Common Stock of the
Company will be converted into the right to
receive in the aggregate 2,807,040 shares of
Company Common Stock.
Fractional Shares........... No fractional shares of Company Common Stock will
be issued. In lieu thereof, an Exchange Agent
selected by the Company will aggregate all
fractional shares of Company Common Stock and
sell such shares at the prevailing market prices.
Each holder of record of Company Common Stock who
would otherwise have been entitled to a fraction
of a share of Company Common Stock will receive
cash (without interest) in an amount equal to
such holder's proportionate interest in the net
proceeds from such sale or sales by the Exchange
Agent.
Effective Date.............. The Transaction is currently expected to become
effective as soon as practicable after the Tax
Ruling is received.
Conditions to the The Transaction is conditioned upon, among other
Transaction................ things, approval of the Transaction at the
Special Meeting by the holders of a majority of
the outstanding shares of Company Common Stock,
completion of $17.4 million of long-term
financing by ECI or ATN-VI, receipt of the Tax
Ruling from the IRS with respect to the tax-free
treatment for U.S. federal income tax purposes to
the Company and ECI and to the holders of Company
Common Stock and Class A Common Stock of the
transactions contemplated by the Subscription
Agreement and the Merger Agreement, the listing
of ECI Common Stock on the AMEX, the continued
listing of New ATN Common Stock on the AMEX and
the absence of any material adverse change in the
businesses to be conducted after the Effective
Date by the Company and ECI, respectively. Mr.
Prosser and Mr. Prior, who in the aggregate own a
majority of the outstanding shares of Company
Common Stock, have agreed to vote in favor of
approval of the Transaction at the Special
Meeting. The Tax Ruling may be received
significantly later than the date of the Special
Meeting.
Reasons for the The Company Board has determined unanimously that
Transaction................ the long-term prospects of the Company's business
will be improved if the Company is divided into
two separate publicly-owned companies.
Consummation of the Transaction will resolve
material disagreements that have arisen between
Mr. Prior and Mr. Prosser, the Company's two
principal stockholders and co-chief executive
6
<PAGE>
officers, pertaining to the management and
direction of the Company. The material
disagreements between Mr. Prior and Mr. Prosser
concerning the management and direction of the
Company and related matters have resulted in
litigation between the two and a management
deadlock that has impaired the Company's ability
to function other than in the ordinary course of
business. After devoting considerable time and
effort to resolving these differences, Mr.
Prosser, Mr. Prior and the Company Board have
unanimously (with Mr. Prosser and Mr. Prior
abstaining) approved the Transaction and the
agreements for the Transaction. ECI will be owned
by Mr. Prosser and the Company's public
stockholders, and New ATN will be owned by Mr.
Prior and the Company's public stockholders.
Recommendation of the
Company Board.............. At its July 7, 1997 meeting, the Company Board
unanimously (with Mr. Prosser and Mr. Prior
abstaining) approved the Transaction and the
transactions contemplated thereby, including the
Merger, and recommended that stockholders vote
for the Transaction. See "The Transaction--
Recommendation of the Company Board."
Investment Banker's Prudential Securities Incorporated ("Prudential
Opinion.................... Securities") has rendered an opinion (the
"Opinion") to the Company Board to the effect
that, as of the date of the Opinion, the basic
economic terms of the transaction as provided for
in the Subscription Agreement, the
Recapitalization Agreement and the Merger
Agreement, are fair to the public stockholders
(i.e. all stockholders of the Company other than
Mr. Prior, the Trust, and Mr. Prosser and his
family) from a financial point of view. A copy of
the Opinion, which sets forth the assumptions
made, matters considered, and the limits of
review, is attached to this Proxy Statement-
Prospectus as Annex B, and should be read
carefully by the holders of the Company Common
Stock. On , 1997, Prudential Securities
confirmed the Opinion as of that date. See "The
Transaction--Opinion of Investment Banker."
Financing................... ATN-VI, which will become a subsidiary of ECI,
has received a commitment for a long-term loan in
the net amount of $17,400,000 (the "Credit
Facility") from Rural Telephone Finance
Cooperative ("RTFC") to provide funds needed by
the Company to repurchase a portion of the
Company Common Stock held by Mr. Prior and all of
such stock held by the Trust in connection with
the Transaction as described above under
"Repurchase and Recapitalization." See "The
Transaction--The Credit Facility."
Certain U.S. Federal Tax
Consequences............... For a discussion of certain U.S. federal income
tax considerations in connection with the
Transaction, see "Risk Factors--Risks Relating to
the Transaction--Potential U.S. Federal Income
Tax Liabilities" and "The Transaction--Certain
U.S. Federal Income Tax Consequences."
7
<PAGE>
NEW ATN
New ATN..................... The Company will retain the Company's business
and operations in Guyana. In this Proxy
Statement-Prospectus, the Company as it will be
constituted on and after the Effective Date is
sometimes referred to as "New ATN." See "Business
and Properties of New ATN."
Principal Office............ The principal office of New ATN will be at 19
Estate Thomas, Havensite, P.O. Box 12030, St.
Thomas, U.S. Virgin Islands 00802. Its telephone
number will be 340-777-8000.
Board of Directors.......... On the Effective Date, the Board of Directors of
New ATN is expected to consist of the following
five individuals: James B. Ellis, Andrew F. Lane,
Robert A.R. Maclennan, Cornelius B. Prior, Jr.,
and Henry Wheatley. Except for Mr. Ellis and Mr.
Wheatley, each of the proposed directors is
currently a director of the Company. See
"Directors and Management of New ATN--Directors
of New ATN."
Shares Outstanding.......... On the Effective Date, New ATN will have
4,909,000 shares of Common Stock outstanding, of
which Mr. Prior will own 2,807,040 shares (57%)
and Mr. Prosser will own none.
Trading Market.............. The New ATN Common Stock is expected to continue
to be listed on the AMEX under the symbol "ANK."
The trading prices of the New ATN Common Stock
will be substantially affected by the
Transaction. See "The Transaction--Listing and
Trading of New ATN Common Stock."
EMERGING COMMUNICATIONS, INC.
Emerging Communications, Emerging Communications, Inc. ("ECI"), is a newly
Inc........................ formed Delaware corporation which, following the
Effective Date, will own and operate the
Company's business and operations in the Virgin
Islands. See "Business and Properties of ECI."
Principal Office............ The principal office of ECI will be at Chase
Financial Center, P.O. Box 1730, St. Croix, U.S.
Virgin Islands 00821. Its telephone number will
be 340-777-7700.
Board of Directors.......... On the Effective Date, the Board of Directors of
ECI is expected to consist of the following six
individuals: Jeffrey J. Prosser, John P. Raynor,
Sir Shridath S. Rampal, Salvatore Muoio, John G.
Vondras and Richard N. Goodwin. Except for Mr.
Muoio, Mr. Vondras and Mr. Goodwin, each of the
proposed ECI directors is currently a director of
the Company. See "Directors and Management of
ECI--Directors of ECI."
Shares Outstanding.......... On the Effective Date, ECI will have 10,959,131
shares of Common Stock outstanding, of which Mr.
Prosser will own 5,704,231 shares (52%) and Mr.
Prior will own none.
8
<PAGE>
Trading Market.............. There is currently no public market for ECI
Common Stock. ECI has applied for listing of the
ECI Common Stock on the AMEX under the symbol "
." Listing is a condition to consummation of the
Transaction. See "The Transaction--Listing and
Trading of ECI Common Stock."
Certain Provisions of
Restated Certificate of Certain provisions of ECI's Restated Certificate
Incorporation and By-laws.. of Incorporation and By-laws may have the effect
of making an acquisition of control of ECI more
difficult or expensive. See "Description of ECI
Capital Stock--Anti-takeover Effects of Certain
Provisions of the Certificate and By-Laws."
9
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF THE COMPANY AND
SUMMARY PRO FORMA FINANCIAL DATA OF NEW ATN
The following summary historical financial data of the Company and its
subsidiaries as of and for the years ended December 31, 1996, 1995 and 1994
have been derived from the Company's audited consolidated financial statements.
The following summary historical financial data for the three months ended
March 31, 1997 and 1996 have been derived from the unaudited consolidated
interim financial statements which, in the opinion of management, reflects all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation. The historical data presented below includes
the financial data of the businesses to be transferred to ECI in the
Transaction as well as those businesses to be retained by New ATN. The
consolidated financial data for the three months ended March 31, 1997 are not
necessarily indicative of the operating results to be expected for the entire
fiscal year.
Also set forth below are summary unaudited pro forma consolidated statements
of operations data and consolidated balance sheet data for New ATN. The pro
forma consolidated balance sheet data as of March 31, 1997 give effect to the
Transaction, as if it occurred on March 31, 1997. The pro forma consolidated
statement of operations data for the year ended December 31, 1996 and the three
months ended March 31, 1997 give effect to the Transaction, as if it occurred
at the beginning of the period indicated. The pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
Transaction had occurred at the beginning of the periods indicated, nor is it
necessarily indicative of future operating results or financial position.
The summary historical and pro forma financial data should be read in
conjunction with the Company's consolidated financial statements and notes
thereto, as of December 31, 1996 and for each of the three years in the period
ended December 31, 1996 and the Company's quarterly report on Form 10-Q for the
three months ended March 31, 1997 which are incorporated by reference in this
Proxy Statement-Prospectus and the unaudited pro forma consolidated condensed
balance sheet of New ATN as of March 31, 1997 and the unaudited pro forma
consolidated condensed statements of operations of New ATN for the year ended
December 31, 1996 and the three months ended March 31, 1997 which are included
elsewhere in this Proxy Statement-Prospectus. All dollar amounts are in
thousands, except per share data.
10
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF THE COMPANY AND
SUMMARY PRO FORMA FINANCIAL DATA OF NEW ATN
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ---------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
-------- -------- -------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Telephone operations:
Total revenue......... $134,867 $184,632 $206,002 $148,253 $49,396 $47,945 $ 31,742
Total expense......... 89,320 130,575 155,174 114,262 36,376 36,015 25,557
-------- -------- -------- -------- ------- ------- --------
Income from telephone
operations............. 45,547 54,057 50,828 33,991 13,020 11,930 6,185
Income from other opera-
tions.................. 1,942 2,639 2,684 -- 850 319 --
Non-operating revenues
and expenses (other
than (9,341) (10,219) (9,458) (6,870) (4,442) (1,668) (960)
interest), net......... -------- -------- -------- -------- ------- ------- --------
Income from continuing
operations before in-
terest expense, income
taxes and minority in-
terest................. 38,148 46,477 44,054 27,121 9,428 10,581 5,225
Interest expense, net... 12,798 11,540 10,831 3,399 2,726 2,483 814
-------- -------- -------- -------- ------- ------- --------
Income from continuing
operations before in-
come taxes and minority
interest............... 25,350 34,937 33,223 23,722 6,702 8,098 4,411
Income taxes............ 10,465 15,250 13,039 10,263 2,924 2,909 1,916
-------- -------- -------- -------- ------- ------- --------
Income from continuing
operations before mi-
nority interest........ 14,885 19,687 20,184 13,459 3,778 5,189 2,495
Minority interest....... (1,743) (2,477) (2,177) (2,096) (592) (307) (300)
-------- -------- -------- -------- ------- ------- --------
Income from continuing $ 13,142 $ 17,210 $ 18,007 $ 11,363 $ 3,186 $ 4,882 $ 2,195
operations............. ======== ======== ======== ======== ======= ======= ========
Income per share from
continuing opera- $ 2.31 $ 0.45
tions(1)............... ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
-------------------------- ------------------
PRO FORMA
1994 1995 1996 1997 1997
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Fixed assets, net................ $242,548 $226,660 $251,996 $251,655 $ 94,363
Total assets..................... 332,048 363,874 382,834 379,225 157,387
Short-term debt (including cur-
rent portion of
long-term debt)................. 19,249 24,841 30,095 29,746 5,459
Long-term debt, net.............. 133,149 120,297 109,737 107,522 18,839
Stockholders' equity............. 114,861 130,956 149,791 154,673 89,133
</TABLE>
- --------
(1)Historical income per share amounts have not been presented as this
information is not considered meaningful.
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF ECI
The following summary historical financial data have been derived from the
audited consolidated financial statements of ATN-VI, the predecessor company to
ECI, and its subsidiaries as of and for the years ended December 31, 1996, 1995
and 1994. The following summary historical financial data for the three months
ended March 31, 1997 and 1996 have been derived from the unaudited consolidated
interim financial statements of ATN-VI which, in the opinion of management,
reflects all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation. The consolidated financial data
for the three months ended March 31, 1997 are not necessarily indicative of the
operating results to be expected for the entire fiscal year.
Also set forth below are summary unaudited pro forma consolidated statement
of operations data and consolidated balance sheet data for ECI. The pro forma
consolidated balance sheet data as of March 31, 1997 give effect to the
Transaction, as if it occurred on March 31, 1997. The pro forma consolidated
statement of operations data for the year ended December 31, 1996 and the three
months ended March 31, 1997 give effect to the Transaction, as if it occurred
at the beginning of the period indicated. The pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
Transaction had occurred at the beginning of the periods indicated, nor is it
necessarily indicative of future operating results or financial position.
The summary historical and pro forma financial data should be read in
conjunction with the consolidated financial statements and notes thereto of
ATN-VI, as of December 31, 1996 and for each of the three years in the period
ended December 31, 1996, ATN-VI's quarterly financial statements for the three
months ended March 31, 1996 and 1997, the unaudited pro forma consolidated
condensed balance sheet of ECI as of March 31, 1997 and the unaudited pro forma
consolidated condensed statements of operations of ECI for the year ended
December 31, 1996 and the three months ended March 31, 1997, all of which are
included elsewhere in this Proxy Statement-Prospectus. All dollar amounts are
in thousands, except per share data.
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF ECI
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- ------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
-------- -------- -------- ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Telephone operations:
Total revenue.......... $ 56,711 $ 53,462 $ 57,749 $ 57,749 $ 13,387 $16,203 $ 16,203
Total expense.......... 38,690 38,001 40,912 40,912 9,282 10,458 10,458
-------- -------- -------- ---------- -------- ------- ----------
Income from telephone
operations............. 18,021 15,461 16,837 16,837 4,105 5,745 5,745
Income from other opera-
tions.................. 1,942 2,639 2,684 2,684 850 319 319
Non-operating revenues
and expenses (other
than interest), net.... (2,279) (3,138) (2,588) (2,937) (710) (708) (795)
-------- -------- -------- ---------- -------- ------- ----------
Income from continuing
operations before
interest expense,
income taxes and
minority interest...... 17,684 14,962 16,933 16,584 4,245 5,356 5,269
Interest expense, net... 9,520 8,862 9,082 8,694 2,233 2,074 1,984
-------- -------- -------- ---------- -------- ------- ----------
Income from continuing
operations before
income taxes and
minority interest...... 8,164 6,100 7,851 7,890 2,012 3,282 3,285
Income taxes............ 3,054 1,631 2,215 2,258 593 855 863
-------- -------- -------- ---------- -------- ------- ----------
Income from continuing
operations before
minority interest...... 5,110 4,469 5,636 5,632 1,419 2,427 2,422
Minority interest....... (47) (87) (81) (81) (30) (7) (7)
-------- -------- -------- ---------- -------- ------- ----------
Income from continuing
operations............. $ 5,063 $ 4,382 $ 5,555 $ 5,551 $ 1,389 $ 2,420 $ 2,415
======== ======== ======== ========== ======== ======= ==========
Income per share from
continuing operations
(1).................... $ 0.51 $ 0.22
========== ==========
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
---------------------------- ---------------------
PRO FORMA
1994 1995 1996 1997 1997
-------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Fixed assets, net....... $146,706 $129,810 $149,574 $ 149,365 $157,292
Total assets............ 191,141 203,853 210,327 213,593 221,838
Short-term debt (includ-
ing current portion of
long-term debt)........ 7,184 8,665 18,498 18,149 24,287
Long-term debt, net..... 94,579 91,028 86,589 85,686 106,083
Stockholders' equity.... 32,233 35,500 41,883 44,303 48,140
</TABLE>
- --------
(1) Historical income per share amounts have not been presented as this
information is not considered meaningful.
13
<PAGE>
RISK FACTORS
The following factors, in conjunction with the other information included in
this Proxy Statement-Prospectus (including the documents incorporated by
reference herein), should be considered by stockholders of the Company in
evaluating the matters presented herein.
RISKS RELATING TO THE TRANSACTION
Conditions to the Transaction. Consummation of the Transaction is
conditioned upon, among other things, (i) receipt of the Tax Ruling, (ii) the
completion of $17.4 million of long-term financing by ECI or ATN-VI to provide
the funds needed by the Company to repurchase certain shares of Company Common
Stock owned by Mr. Prior and the Trust, and (iii) no material adverse changes
having occurred in the businesses to be conducted by either New ATN or ECI
after the Effective Date. The Tax Ruling may be received significantly later
than the date of the Special Meeting. There can be no assurance that such
conditions will be satisfied favorably to the Company or at all. Even if all
conditions are satisfied, Mr. Prior, Mr. Prosser and the Company Board may, if
they all agree, abandon, defer or modify the Transaction at any time prior to
the Effective Date. The Company Board will not, however, consent to any
changes in the terms of the Transaction after the Transaction is approved by
stockholders unless the Company Board determines that such changes would not
be materially adverse to the Company's stockholders.
Less Diversification. After the Effective Date, each of ECI and New ATN will
be a smaller and less diversified company than the Company is prior to the
Effective Date. The operations and business of the Guyana Telephone &
Telegraph Company Limited ("GT&T"), which will be retained by New ATN, and the
operations and businesses of ATN-VI and its subsidiaries, which will be
acquired by ECI, are each subject to a number of separate and distinct risk
factors. After the Effective Date, each of these separate risk factors will
have a greater potential for adverse impact on New ATN or ECI individually
than they currently have on the combined operations of the Company. See "--
Risks Relating to New ATN" and "--Risks Relating to ECI."
Potential Disruptions in Operations. The division of the staff and
operations of the Company between ECI and New ATN may result in some temporary
dislocations and inefficiencies in the business operations of New ATN and ECI,
and may also result in the duplication of certain personnel, administrative
and other expenses required for the operation of ECI and New ATN as
independent companies. There can be no assurance that such transition in the
management of the current businesses of the Company will not disrupt, at least
temporarily, the operations of these businesses. Nevertheless, the Company
Board believes that the separation of the businesses of the Company between
New ATN and ECI will also result in long-term operating efficiencies as a
result of eliminating the difficulties and disagreements which have adversely
affected the Company's operations in the past and allowing the management of
ECI and New ATN and their respective subsidiaries to focus on their respective
businesses.
Repurchase Price for Mr. Prior's Stock. As a part of the Transaction, the
Company will repurchase 416,998 shares of Company Common Stock owned by Mr.
Prior and 348,564 shares of Company Common Stock owned by the Trust at a
repurchase price of $22.7284 per share, or $17,400,000 in the aggregate. The
repurchase price was determined by arm's length negotiations between Mr. Prior
and Mr. Prosser. At , 1997, the closing market price for Company Common
Stock on the American Stock Exchange (the "AMEX") was $ per share. The
repurchase price is also likely to be significantly higher than the market
price of Company Common Stock on the Effective Date.
Potential Responsibility for Liabilities Not Expressly Assumed. The
Subscription Agreement, the Indemnity Agreement and the Tax Sharing and
Indemnification Agreement allocate among New ATN and ECI responsibility for
various debts, liabilities and obligations of the Company. It is possible that
a court would disregard this contractual allocation of debts, liabilities and
obligations among the parties and require either New ATN or ECI or their
respective subsidiaries to assume responsibility for obligations allocated to
another party, particularly if such other party were to refuse or be unable to
pay or perform any of its allocated obligations.
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Potential U.S. Federal Income Tax Liabilities. Consummation of the
Transaction is conditioned, among other things, on receipt of the Tax Ruling,
a ruling letter from the Internal Revenue Service ("IRS") to the effect that
the Company's transfer of assets and liabilities to ECI and the distribution
of ECI Common Stock to holders of Company Common Stock and Class A Common
Stock will be tax free for U.S. federal income tax purposes to the Company and
ECI and to such holders. Such a ruling, while generally binding upon the IRS,
is based upon certain facts and representations contained in the Company's
request for the Tax Ruling. If such facts or representations were to be
incomplete or untrue in any material respect, or if the facts upon which the
Tax Ruling was based are materially different from the facts at the time of
the Transaction, the IRS could modify or revoke its ruling retroactively. Each
of Mr. Prior, Mr. Prosser, New ATN and ECI has agreed to certain restrictions
on his or its future actions which might jeopardize the tax-free treatment of
the Transaction for U.S. federal income tax purposes. See the discussion of
the Tax Sharing and Indemnification Agreement under "The Transaction--
Documentation for the Transaction."
If the distribution of ECI Common Stock were not to qualify as a tax free
distribution under Section 355 of the Internal Revenue Code of 1986, as
amended (the "Code"), the Company would recognize taxable gain for U.S.
federal income tax purposes on the difference between the fair market value of
the ECI Common Stock distributed and the Company's adjusted tax basis in such
stock. Furthermore, if the distribution of ECI Common Stock were not to
qualify as a tax-free distribution under Section 355 of the Code, each holder
of Company Common Stock who received shares of ECI Common Stock in the
Transaction would be treated as if such holder received a taxable distribution
in an amount equal to the fair market value of the ECI Common Stock received,
which would result in (i) a dividend to the extent of such holder's pro rata
share of the Company's earnings and profits for 1997, which would include any
gain recognized by the Company on the distribution (the Company did not have
any accumulated earnings and profits as of the beginning of 1997); (ii) a
reduction in such stockholder's tax basis in Company Common Stock to the
extent that the amount received exceeded the amount referenced in clause (i);
and then (iii) gain from the sale or exchange of Company Common Stock to the
extent the amount received exceeded the sum of the amounts referenced in
clauses (i) and (ii). The result for Mr. Prosser would be a taxable capital
gain to the extent the fair market value of the ECI Common Stock received by
him exceeded his tax basis in his Class A Common Stock exchanged therefor. See
"The Transaction--Certain U.S. Federal Income Tax Consequences."
Uncertainty Regarding Trading Prices of and Markets for Stock Following the
Transaction. It is a condition to consummation of the Transaction that the
Common Stock of New ATN remain listed on the AMEX and that the ECI Common
Stock be listed on the AMEX. However, there is currently no public market for
the ECI Common Stock, and the Company Common Stock currently represents an
investment in a larger and more diversified company than New ATN will be
immediately after the Effective Date. ECI and New ATN will each have a smaller
number of shares outstanding and a smaller market capitalization than the
Company currently has. There can be no assurance that a public trading market
will continue for New ATN Common Stock or will develop for ECI Common Stock
or, assuming such public trading markets develop, as to the prices at which
New ATN Common Stock or ECI Common Stock will trade after the Effective Date.
Upon completion of the Transaction, the market prices of ECI Common Stock and
New ATN Common Stock may be influenced by many factors, including the depth
and liquidity of the market for each of these stocks, investor perceptions of
ECI and of New ATN and general economic and other conditions. There also can
be no assurance as to whether the combined market value after the Effective
Date of one share of ECI Common Stock and 0.4 of a share of New ATN Common
Stock will be less than, equal to or greater than the market value of one
share of Company Common Stock prior to the Effective Date. Until shares of ECI
Common Stock and New ATN Common Stock are fully distributed and an orderly
market develops, the prices at which trading in such shares occurs may
fluctuate significantly.
RISKS RELATING TO NEW ATN
Sole Dependence on GT&T. Following the Effective Date, New ATN will continue
to own 80% of the outstanding capital stock of GT&T, and GT&T will be New
ATN's only operating subsidiary and the only source of New ATN's revenues and
income.
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Regulatory Risks. Many aspects of GT&T's business and operations are subject
to regulation by the Guyana Public Utilities Commission (the "PUC"). Since
GT&T's commencement of operations as a subsidiary of the Company in 1991, GT&T
has had delays and difficulties in obtaining from the PUC the rate increases
that GT&T believed it was entitled to receive under applicable Guyana law. The
PUC has also issued orders prohibiting GT&T from paying advisory fees and
intercompany debt to the Company, and there are currently pending before the
Guyana courts proceedings with respect to these matters. There is also pending
an appeal by the PUC from a court order invalidating a PUC rate decrease
order.
The PUC has scheduled a hearing to commence in late August 1997 to review a
complaint by the Guyana government with regard to the failure of GT&T to
complete an expansion plan which was established in connection with the
commencement of GT&T's operations as a subsidiary of the Company in January
1991. These proceedings could result in monetary penalties to GT&T,
cancellation of its license as the sole telecommunications carrier in Guyana
or other action by the PUC or the government of Guyana which could have a
material adverse effect on GT&T's business and prospects. There can be no
assurance that any of these actions will be resolved favorably to the Company.
See "Business and Properties of New ATN--Regulation--PUC Law and
Telecommunications Law."
Political Risks. The Company's presence in Guyana exposes it to potential
economic and political risks. Since 1985, Guyana has been making the
transition to a market economy with private industry from a socialist system
with nationalized industry which was in effect since the mid-1970s. Although
the country is rich in natural resources, it has had a low per-capita gross
national product and substantial unemployment. Guyana was governed from 1968
until 1992 by a single political party, the PNC. It was under this party that
industry was nationalized in the mid-1970s and that the basic steps to change
to a market economy were made between 1985 and 1992. One of the most
significant of these steps was the transfer of the operations of the country's
monopoly telephone company from government ownership to GT&T in January 1991.
In October 1992, elections were held in Guyana and a new government,
consisting of a coalition of the PPC and Civic parties and headed by Dr.
Cheddi Jagan, came to power. That government has been less active than the
previous government in seeking to privatize government-owned businesses and to
encourage foreign private investment. Dr. Jagan died in March, 1997. He was
succeeded as President by Mr. Samuel Hinds, the Prime Minister and the head of
the Civic party (which is by far the smaller of the two parties in the
government coalition), and Mrs. Janet Jagan, Dr. Jagan's widow, became Prime
Minister. Under the Guyana constitution, new elections must be held by the end
of 1997.
When the Company made its initial investment in Guyana in 1991, the Company
obtained political risk insurance for its investment from the Overseas Private
Investment Corporation ("OPIC"), an agency of the U.S. government. While OPIC
has never, to the Company's knowledge, formally announced that it has
suspended writing political risk insurance for U.S. investments in Guyana, it
is the Company's understanding that OPIC ceased providing such insurance
around the beginning of 1993 because of its concern about developments between
the Guyana government and two U.S. companies which had been insured by OPIC.
The Company's difficulties in obtaining rate increases from the PUC was one of
OPIC's concerns.
Separately, in December 1996, OPIC canceled the Company's political risk
insurance because of OPIC's objections to GT&T's provision of
telecommunications services to international audiotext providers, and the
Company was able to obtain other political risk insurance with respect to its
investment in GT&T in the private insurance market at substantially higher
rates than the Company had received from OPIC. These insurance policies cover
only specified risks and contain a number of limitations and exclusions. The
aggregate insurance coverage is significantly less than the fair market value
of the Company's investment in GT&T and does not insure against loss of future
revenues or profits. See "Business and Properties of New ATN--Political Risk
Insurance."
Audiotext Traffic Risks. A substantial portion of New ATN's revenues are
derived from GT&T's provision of telecommunication services to international
audiotext providers. GT&T is one of many companies around the world which
provides such services. The business is highly competitive. GT&T's contracts
with audiotext
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providers are all terminable on short notice, and such providers can quickly
shift their traffic to another foreign telecommunications carrier that offers
higher compensation or better service. A substantial portion of GT&T's
audiotext business comes from one service bureau which acts as an intermediary
with many other audiotext providers. GT&T's profit margins for these services
have been declining and may decline further as a result of competition from
other foreign carriers, regulatory pressures from the Federal Communications
Commission ("FCC") to reduce the rates paid by U.S. carriers to GT&T for the
portion of this traffic that originates in the United States, pressure from
foreign carriers for receiving carriers such as GT&T to bear a portion of the
relatively high risk of non-collection for audiotext calls which have
heretofore been borne by the sending carriers, activities of one foreign
carrier in mislabeling the origin of certain traffic, and the strength of the
U.S. dollar against various foreign currencies. In August 1997, the FCC issued
a news release in which it described a Report and Order adopting mandatory
international accounting rates that will result in significant reductions in
the accounting rates used by U.S. carriers in paying GT&T for terminating U.S.
traffic in Guyana. See "Business and Properties of New ATN--Regulation." In
1997 GT&T has experienced significant declines in the volume of this traffic,
and in its revenues and profit margins from such traffic. Moreover, because of
the sexual nature of much of the audiotext traffic, GT&T has been under
pressure from governmental and other sources in Guyana to limit or discontinue
carrying such traffic. See "Business and Properties of New ATN--International
Traffic."
Tax Issues. Since March 1997, the government of Guyana has levied a
substantial tax assessment against GT&T and initiated an audit with an advance
public announcement that the audit could result in an assessment against GT&T
of as much as $40 million in back taxes. While both of these actions have been
stayed pending the determination of applications made by GT&T to the Guyana
High Court, no assurance can be given as to the ultimate outcome of these
issues. See "Business and Properties of New ATN--Taxation--Guyana."
Capital Resources. If and when New ATN settles outstanding issues with the
Guyana government and the PUC with regard to GT&T's expansion plan and its
rates for service, GT&T may require substantial external financing to enable
GT&T to further expand its telecommunications facilities. There can be no
assurance that New ATN or GT&T will be able to obtain any such financing.
Control by a Single Stockholder. After the Effective Date, Cornelius B.
Prior, Jr. will own approximately 57% of the New ATN Common Stock then
outstanding. As a result, he will have the power to significantly control the
affairs of New ATN, including to amend New ATN's Certificate of Incorporation,
to elect all of its directors, to effect fundamental corporate transactions
such as mergers, acquisitions, asset sales and the sale of New ATN and
otherwise direct New ATN's business and affairs without the approval of any
other stockholder.
Future Acquisitions. It is the intention of Mr. Prior, as the controlling
stockholder of New ATN, after the Effective Date to endeavor to expand New
ATN's operations through the acquisition of other telecommunications
businesses, primarily in the Caribbean region. New ATN cannot predict whether
it will be successful in pursuing such acquisition opportunities or what the
consequences of any such acquisition would be. The evaluation and negotiation
of such business acquisitions may involve significant expenditures by New ATN.
There can be no assurance that New ATN will be able to acquire or successfully
integrate any such businesses, and acquisitions that are consummated may
involve the incurrence of significant amounts of debt by New ATN and/or the
dilution of existing stockholders' interests in New ATN through the issuance
of additional shares of New ATN capital stock.
RISKS RELATING TO ECI
Sole Dependence on Virgin Islands Operations. Following the Effective Date,
ECI will own all of the outstanding capital stock of ATN-VI, which in turn
will own all of the outstanding capital stock of the Virgin Islands Telephone
Corporation ("Vitelco") and 90% of the outstanding capital stock of Vitelcom
Cellular, Inc. ("VitelCellular") and will continue to conduct directly the
business currently conducted by Vitelcom, Inc. ("Vitelcom"). These companies,
which currently conduct all of the Company's operations in the Virgin Islands,
will be ECI's only operating subsidiaries.
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<PAGE>
Regulatory Risks. Vitelco's local telephone operations, including the
services offered and the rates for these services, are subject to the
jurisdiction of the U.S. Virgin Islands Public Service Commission (the "PSC").
Since 1987 when the Company acquired Vitelco, each time the PSC has dealt with
Vitelco's rates for local service, rates have been reduced as a result of
settlement agreements between Vitelco and PSC. The latest agreement provided
that Vitelco's local rates would remain unchanged until January 1, 1995 at the
earliest, and that either Vitelco or the PSC could initiate proceedings to
change local rates with effect after that date. To date no such proceedings
have been initiated. See "Business and Properties of ECI--Regulation."
The Telecommunications Act of 1996 may significantly change many aspects of
the regulation of Vitelco's business and may open up many aspects of its
business to competition. See "Business and Properties of ECI--Competition."
There can be no assurance that any such regulatory charges will not adversely
affect Vitelco's operation or that Vitelco will successfully compete in a more
open market.
Wind Storm Risks. Although the U.S. Virgin Islands are in an area where
hurricanes frequently occur, from 1928 until 1989 they escaped any substantial
hurricane damage. Vitelco's outside plant suffered substantial damage in
September 1989 from Hurricane Hugo, and again in September 1995 from Hurricane
Marilyn. Capital expenditures by Vitelco to repair and upgrade its facilities
following these two hurricanes amounted to approximately $60 million following
Hurricane Hugo and approximately $41 million following Hurricane Marilyn. The
Company recently obtained insurance coverage for damage caused by windstorm to
its outside plant in the amount of $30 million per storm and $55 million in
the aggregate.
Control by a Single Stockholder. After the Effective Date, Jeffrey J.
Prosser will own approximately 52% of the ECI Common Stock then outstanding.
As a result, he will have the power to significantly control the affairs of
New ATN, including to amend ECI's Certificate of Incorporation, to elect all
of its directors, to effect fundamental corporate transaction, such as
mergers, acquisitions, asset sales and the sale of ECI and otherwise direct
ECI's business and affairs without the approval of any other stockholder.
Future Acquisitions. It is the intention of Mr. Prosser, as the controlling
stockholder of ECI, after the Effective Date to endeavor to expand ECI's
operations through the acquisition of other businesses. ECI cannot predict
whether it will be successful in pursuing such acquisition opportunities or
what the consequences of any such acquisition would be. The evaluation and
negotiation of such business acquisitions may involve significant expenditures
by ECI. There can be no assurance that ECI will be able to acquire or
successfully integrate any such businesses, and acquisitions that are
consummated may involve the incurrence of significant amounts of debt by ECI
and/or the dilution of existing stockholders' interests in ECI through the
issuance of additional shares of ECI capital stock. ECI is currently
evaluating certain acquisitions; however, no assurances can be given that any
such acquisitions will be consummated or that, if completed, they will be
successful. Furthermore, there can be no assurance that ECI's management will
be able to manage effectively any resulting business or that any acquisition
will benefit ECI. Depending upon the nature, size and timing of acquisitions,
ECI may be required to raise financing. There can be no assurance that the
Credit Facility, or any other loan agreements to which ECI may become a party
will permit such additional financing or that such additional financing will
be available to ECI on terms acceptable to its management or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of ECI--Liquidity and Capital Resources."
18
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THE SPECIAL MEETING
INTRODUCTION
This Proxy Statement-Prospectus is being furnished to the stockholders of
Atlantic Tele-Network, Inc. in connection with the solicitation of proxies by
the Company Board from holders of record of the Company's outstanding shares
of Company Common Stock, as of the close of business on , 1997 (the
"Record Date") for use at the Special Meeting of Stockholders of the Company
(the "Special Meeting") to be held on , 1997 at the time and place
specified in the accompanying Notice of Special Meeting of Stockholders, or
any adjournment or postponement thereof. This Proxy Statement-Prospectus is
first being mailed to the Company stockholders on or about , 1997.
MATTERS TO BE CONSIDERED
The purpose of the Special Meeting is to consider and vote upon the proposed
Transaction including: (a) the approval and adoption of the Subscription
Agreement, as a result of which (i) the Company's business and operations in
the Virgin Islands will be owned and operated by ECI, and (ii) the Company's
business and operations in Guyana will continue to be owned and operated by
the Company; (b) the approval and adoption of the Repurchase and
Recapitalization Agreement pursuant to which the Company will repurchase
418,998 shares of Company Common Stock owned by Mr. Prior and 348,564 shares
of Company Common Stock owned by the Trust at a repurchase price of $22.7284
per share, Mr. Prior will exchange all of his remaining 2,927,038 shares of
Company Common Stock for a like number of shares of a new class of common
stock of the Company to be designated Class B Common Stock and Mr. Prosser
will exchange all of his 3,325,000 shares of Company Common Stock for a like
number of shares of a new class of common stock of the Company to be
designated Class A Common Stock; (c) the approval and adoption of the Merger
Agreement pursuant to which (i) Mergerco will be merged with and into the
Company, (ii) each share of Company Common Stock (but not the newly created
Class A Common Stock and Class B Common Stock to be issued prior to the
Merger) will be converted into the right to receive four-tenths (0.4) of a
share of Company Common Stock and one share of ECI Common Stock, (iii) the
outstanding shares of Class A Common Stock of the Company will be converted
into the right to receive in the aggregate 5,704,231 shares of ECI Common
Stock and (iv) the outstanding shares of Class B Common Stock of the Company
will be converted into the right to receive in the aggregate 2,807,040 shares
of Company Common Stock; (d) the approval of the Charter Amendment which will
create and authorize the Company Class A Common Stock and the Company Class B
Common Stock to be issued prior to the Merger to Mr. Prosser and Mr. Prior
pursuant to the Recapitalization Agreement; (e) the approval of (i) the Non-
Competition Agreement, (ii) the Indemnity Agreement, (iii) the Technical
Assistance Agreement, (iv) the Tax Sharing and Indemnification Agreement and
(v) the Employee Benefits Agreement; and (f) the approval of the transactions
contemplated by the foregoing agreements and the Charter Amendment.
The purpose of the Special Meeting also is to transact such other business,
including, without limitation, the adjournment of the Special Meeting
(including an adjournment of the Special Meeting to allow for the fulfillment
of certain conditions precedent to the Transaction) as may properly come
before the Special Meeting or any adjournments or postponements thereof.
The Subscription Agreement, Recapitalization Agreement, Merger Agreement,
Charter Amendment, Non-Competition Agreement, Indemnity Agreement, Technical
Assistance Agreement, Tax Sharing and Indemnification Agreement and Employee
Benefits Agreement will all be voted upon together as part of the Transaction,
and none of these agreements will be effected unless the Transaction as a
whole is approved at the Special Meeting.
Each copy of this Proxy Statement-Prospectus mailed to the Company
stockholders is accompanied by a form of proxy for use at the Special Meeting.
This Proxy Statement-Prospectus is also being furnished to the Company
stockholders as a prospectus of ECI with respect to the shares of ECI Common
Stock issuable to the Company stockholders upon consummation of the Merger.
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COMPANY BOARD RECOMMENDATION
THE COMPANY BOARD RECOMMENDS THAT THE COMPANY STOCKHOLDERS VOTE FOR APPROVAL
AND ADOPTION OF THE TRANSACTION.
VOTING RIGHTS AND PROXY INFORMATION
Only holders of record of shares of the Company Common Stock as of the close
of business on the Record Date will be entitled to notice of and to vote at
the Special Meeting. On , 1997, 12,272,500 shares of the Company Common
Stock were outstanding. Each share of Company Common Stock entitles the holder
thereof as of the Record Date to one vote on each matter to be considered at
the Special Meeting. The holders of at least a majority of the outstanding
shares of the Company Common Stock as of the Record Date must be present in
person or represented by proxy at the Special Meeting in order to establish a
quorum for the consideration of the Transaction or for the transaction of any
additional business to properly come before the Special Meeting (except as may
otherwise be provided by applicable law, the Certificate of Incorporation or
the Company's By-laws) at the Special Meeting.
Approval and adoption of the Transaction by the Company stockholders at the
Special Meeting requires the affirmative vote of holders of a majority of the
outstanding shares of the Company Common Stock as of the Record Date. Any
other business to properly come before the Special Meeting (except as
otherwise provided by applicable law, the Certificate of Incorporation or the
Company's By-laws) will require the affirmative vote of holders of a majority
of the shares of the Company Common Stock present in person or by proxy at the
Special Meeting. Abstentions will be counted for purposes of determining the
presence or absence of a quorum at the Special Meeting. Broker non-votes
(which occur when brokers holding shares as nominees for their customers do
not have authority to vote on a matter absent specific instructions from the
beneficial owners of the shares) will be counted for purposes of determining
the presence or absence of a quorum at the Special Meeting. Because approval
of the Transaction requires the affirmative vote of the majority of the
outstanding shares of the Company Common Stock, abstentions, broker non-votes
and failures to vote in person or by proxy at the Special Meeting will have
the effect of votes against the Transaction. With respect to all other
business to properly come before the Special Meeting, abstentions, broker non-
votes and failures to vote shares represented and entitled to vote will have
the effect of votes cast against.
Cornelius B. Prior, Jr. and Jeffrey J. Prosser, holders of voting authority
over 3,692,600 and 3,011,250 shares of the Company Common Stock, respectively,
as of the Record Date, have agreed to vote all such shares in favor of the
Transaction. Because such shares will represent more than a majority of the
outstanding shares of the Company Common Stock as of the Record Date, it thus
is expected that the requisite vote as described in the immediately preceding
paragraph will be effectively secured.
Stockholders of record as of the Record Date are entitled to cast their
votes, in person or by properly executed proxy, at the Special Meeting. All
shares of the Company Stock represented at the Special Meeting by properly
executed proxies received prior to the Special Meeting, unless properly
revoked, will be voted at the Special Meeting in accordance with the
instructions indicated on such proxies. IF A PROXY IS SIGNED AND RETURNED BY A
HOLDER OF THE COMPANY STOCK WITHOUT INDICATING ANY VOTING INSTRUCTIONS, THE
SHARES OF THE COMPANY STOCK REPRESENTED BY SUCH PROXY WILL BE VOTED FOR
APPROVAL AND ADOPTION OF THE TRANSACTION. Any proxy given by a Company
stockholder pursuant to this solicitation may be revoked by the person giving
it at any time before the proxy is voted by (a) filing with the Secretary of
the Company, at or before the Special Meeting, a written notice of revocation
bearing a date later than the date of the proxy; (b) duly executing a
subsequent proxy relating to the same shares and delivering it to the
Secretary of the Company before the Special Meeting; or (c) attending the
Special Meeting and voting in person (although attendance at the Special
Meeting will not in and of itself constitute a revocation of a proxy).
The Company Board is not aware of any business to be acted upon at the
Special Meeting other than as described in this Proxy Statement-Prospectus.
If, however, other business is properly brought before the Special
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Meeting, the persons appointed as proxies or their substitutes will have
discretion to vote or act thereon according to their best judgment and
applicable law unless the proxy indicates otherwise, except that no proxy that
directs the proxy holders to vote the shares represented thereby against, or
to abstain from voting on, the Transaction shall be voted in favor of any
adjournment or postponement of the Special Meeting.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
SOLICITATION OF PROXIES
In connection with the Special Meeting, proxies are being solicited by and
on behalf of the Company Board. In addition to solicitation by use of the
mails, proxies may be solicited by directors, officers and employees of the
Company in person, by telephone, telegram or other means of communication.
Such directors, officers and employees will not be specifically compensated
for such services but may be reimbursed for out-of-pocket expenses in
connection with such solicitation. Arrangements will be made with brokerage
houses, nominees, fiduciaries and custodians for forwarding of proxy
solicitation materials to beneficial owners of the Company Stock held of
record by such persons, and the Company may reimburse such nominees,
fiduciaries and custodians for their reasonable expenses incurred in
connection therewith.
All expenses of the solicitation of proxies from the Company stockholders in
connection with the Special Meeting will be borne by the Company. However, ECI
must reimburse the Company for 50% of all such expenses if the Transaction is
consummated. See "The Transaction--Expenses."
NO APPRAISAL RIGHTS
The stockholders of the Company will not be entitled to any appraisal rights
under Delaware law in connection with the Transaction and the Merger.
ADJOURNMENT OF THE SPECIAL MEETING
If the Special Meeting is adjourned to another time and place, notice of the
adjourned meeting will not be given if the time and place of the adjourned
meeting are announced at the Special Meeting. If the adjournment is for more
than 30 days, or if after the adjournment the Company Board fixes a new record
date for the adjourned meeting, a notice of the Special Meeting will be given
to each of the Company's stockholders of record entitled to vote at the
adjourned meeting.
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THE TRANSACTION
BACKGROUND AND REASONS FOR THE TRANSACTION
The Company Board has determined, for the reasons set forth below, that the
long-term prospects of the Company's businesses will be improved if the
Company is divided into two separate publicly-owned companies.
The Company's two principal stockholders and co-chief executive officers,
Mr. Prior and Mr. Prosser, organized the Company in 1987 to acquire the Virgin
Islands Telephone Corporation ("Vitelco"). Under the joint leadership of Mr.
Prior and Mr. Prosser, the Company completed that acquisition, refinanced its
acquisition debt, substantially rebuilt Vitelco's telephone network following
devastating destruction from Hurricane Hugo in September 1989, acquired an 80%
equity interest in GT&T in January 1991 and successfully completed an initial
public offering of the Company Common Stock in November 1991.
Since early 1993, material disagreements have arisen between Mr. Prior and
Mr. Prosser pertaining to the management and direction of the Company and its
businesses. These disagreements created a management deadlock which resulted
in extensive litigation between Mr. Prior and Mr. Prosser from June 1995 to
February 1996 and has significantly impaired the Company's ability to function
other than in the ordinary course of business. The management deadlock has
hindered strategic and corporate planning and hiring of employees relating to
the Company's businesses and has contributed to the Company's failure to
complete any additional significant acquisitions or to undertake any other
major initiatives out of the ordinary course of business (other than Vitelco's
making major repairs to its telecommunications network following damage from a
hurricane in September 1995). Since October 1993, Mr. Prosser, Mr. Prior and
the Company Board have devoted considerable time and effort to resolving these
differences, with limited success.
In early February 1996, Mr. Prior and Mr. Prosser entered into a Global
Settlement Agreement and Release in which they agreed to terminate, settle
with prejudice and release all claims they had against each other and the
other parties to such litigation, without admitting any wrongdoing or
liability. In connection with this settlement, the Company hired two
nationally recognized investment banking firms, Prudential Securities
Incorporated and PaineWebber Incorporated, to find an acquirer for the
Company. After contacting 36 potential acquirers, it became apparent by the
latter part of 1996 that an acquirer for the Company, as a whole or any
substantial part of the Company, on economically attractive terms could not be
found. Shortly thereafter, on January 29, 1997, Mr. Prosser, Mr. Prior and the
Company Board approved a Principal Terms Agreement (the "Principal Terms
Agreement") for the Transaction, the consummation of which will result in two
separate public companies: ECI, which will own all of the Company's Virgin
Islands operations and will be controlled by Mr. Prosser; the other, New ATN,
will continue to own the Company's Guyana operations and will be controlled by
Mr. Prior.
The basic economic terms of the Transaction were established by arms-length
negotiation between Mr. Prosser and Mr. Prior. The major objective of these
negotiations was that as a result of the consummation of the Transaction: (i)
Mr. Prosser and Mr. Prior would not have any economic interest in the company
controlled by the other; (ii) the public stockholders of the Company would not
have any reduction in their economic interest in the Company's businesses as a
result of the Transaction; and (iii) the agreed value received or retained in
the Transaction by each of Mr. Prosser, Mr. Prior, and the public stockholders
would be equal to the agreed value of their current respective interests in
the Company's businesses. In these negotiations, Mr. Prosser and Mr. Prior
recognized that the value of the Company's businesses to be transferred to ECI
in the Transaction would significantly exceed the value of the businesses to
be retained by New ATN, and that immediately prior to the consummation of the
transaction, the outstanding shares of Company Common Stock would be held as
follows:
<TABLE>
<S> <C>
Mr. Prior............................ 3,692,600 shares
Mr. Prosser.......................... 3,325,000 shares
Others............................... 5,254,900 shares
-----------------
TOTAL.............................. 12,272,500 shares
</TABLE>
22
<PAGE>
The foregoing share ownership numbers include as shares owned by Mr. Prior and
Mr. Prosser, respectively, shares owned by the Trust and by Mr. Prosser's
children and certain additional shares as to which Mr. Prosser holds an option
to purchase.
By arm's length negotiation during late 1996 and January 1997, Mr. Prosser
and Mr. Prior reached agreement that the Company's Virgin Islands operations
had a value equivalent to $13.00 per share of Company Common Stock and that
the Company's Guyana operations had a value of $9.48 per share of Company
Common Stock. On this basis, the value of Mr. Prior's interest in the
Company's Guyana operations was approximately $31,500,000, the value of Mr.
Prior's interest in the Company's Virgin Islands operations was approximately
$48,000,000, and for Mr. Prior to receive securities in the Transaction
equivalent to the interest in the Virgin Islands operations which he then
owned, he would need to receive $16.5 million in value of securities in the
company (ECI) which would own the Company's Virgin Islands operations. At
$13.00 per share, this would have amounted to approximately 1,269,000 shares
or slightly in excess of 10% of the ECI Common Stock to be outstanding after
consummation of the Transaction.
On January 29, 1997, the Company Board, including Mr. Prior and Mr. Prosser,
unanimously approved the Principal Terms Agreement, establishing basic terms
for the Transaction. Under the Principal Terms Agreement, Mr. Prosser or ECI
was to purchase from Mr. Prior for $16,500,000 the approximately 1,269,000
share interest in ECI which Mr. Prior would otherwise have been entitled to
receive in the Transaction. The Principal Terms Agreement also specifically
contemplated that the purchase by Mr. Prosser of Mr. Prior's excess shares
would be treated as long term capital gain for income tax purposes. Although,
the Principal Terms Agreement expired by its terms on March 31, 1997, Mr.
Prosser and Mr. Prior continued thereafter to negotiate the agreements for the
Transaction.
Subsequent to the execution of the Principal Terms Agreement, Mr. Prosser
determined that ECI, rather than he personally, should obtain the financing
for the funds needed to purchase Mr. Prior's excess interest in the Company as
contemplated by the Principal Terms Agreement, and there was a concern that a
sale by Mr. Prior of his interest to Mr. Prosser would be inconsistent with
the transaction qualifying as a tax-free spin-off for U.S. federal income tax
purposes. Accordingly, three refinements were made to the terms of the
Transaction as established by the Principal Terms Agreement: first, the
Company, with funds borrowed by ECI or its subsidiary ATN-VI, is to repurchase
the excess interest which Mr. Prior currently holds in the Company, and this
repurchase will be taxable to Mr. Prior as ordinary income to the extent of
the earnings and profits of the Company for 1997, rather than being taxable
entirely as long-term capital gain (this change appears to be consistent with
the transaction qualifying as a tax-free spin-off); second, the price to be
paid to Mr. Prior was increased to $17.4 million to compensate for the
additional income taxes estimated to be payable by Mr. Prior in respect of
this repurchase (to accomplish the price increase, the agreed value of the
Company's Virgin Islands operations was increased from $13.00 to $13.2484 per
share of the Company Common Stock); and third, the number of shares in ECI to
be held by Mr. Prosser immediately after the transaction was reduced from
7,017,600 (58%) to 5,704,231 (52%) to reflect the fact that ECI, rather than
Mr. Prosser personally, would be financing the Company's acquisition of Mr.
Prior's excess shares. The economic effect on ECI and its stockholders of this
reduction in the number of ECI shares is the same as if ECI had issued one
share for each outstanding share of the Company and then repurchased 1,313,369
shares of ECI Common Stock at $13.2484 per share. The repurchase price to be
paid to Mr. Prior and the Trust is $22.7284 per share of Company Common Stock
(i.e. the sum of the agreed values of $9.48 and $13.2484 for the Company's
Guyana and Virgin Islands operations). Although these values have been
established by arms-length bargaining between Mr. Prosser and Mr. Prior, they
are indicative only of the intrinsic values each of them place on the assets
and businesses of the Company. They are not necessarily indicative of what the
market price of Company Common Stock, New ATN Common Stock or ECI Common Stock
will be immediately prior to the Transaction, immediately after the
Transaction or at any other time.
The Company Board believes that the separation of the two businesses in the
manner contemplated by the Transaction will finally resolve the management
deadlock between Mr. Prosser and Mr. Prior concerning the
23
<PAGE>
current and future direction of the Company and its businesses and is in the
best interests of the Company and all of its stockholders.
OPINION OF INVESTMENT BANKER
On July 7, 1997, Prudential Securities Incorporated ("Prudential
Securities") delivered an opinion (the "Opinion") to the Company Board that,
as of such date, the basic economic terms of the transaction as provided for
in the Subscription Agreement, the Recapitalization Agreement and the Merger
Agreement, were fair from a financial point of view to the public stockholders
of the Company (i.e., all stockholders of the Company other than Mr. Prior,
the Trust, and Mr. Prosser and his family) (the "Public Stockholders").
Prudential Securities made a presentation of the financial analysis underlying
the Opinion at a meeting of the Company Board on July 7, 1997. This analysis,
as presented to the Company Board, is summarized below. All of the members of
the Company Board were present at the meeting (one via teleconference) and had
an opportunity to ask questions regarding the presentation and the Opinion At
one point, Mr. Prior, Mr. Prosser, and their respective counsel withdrew and
the remaining directors had an opportunity to ask questions regarding the
presentation and the Opinion and to discuss the economic terms of the
transaction, as provided for in the Subscription Agreement, the
Recapitalization Agreement and the Merger Agreement in the absence of these
persons. Prudential Securities discussed with the Company Board the financial
data and other factors considered by Prudential Securities in conducting its
analysis, all of which are summarized below. On , 1997, Prudential
Securities confirmed its Opinion as of that date.
In requesting the Opinion, the Company Board did not give any special
instructions to Prudential Securities or impose any limitations upon the scope
of the investigation that Prudential Securities deemed necessary to enable it
to deliver the Opinion. A copy of the Opinion, which sets forth the
assumptions made, matters considered and limits on the review undertaken, is
attached to this Proxy Statement-Prospectus as Annex B and is incorporated
herein by reference. The summary of the Opinion set forth below is qualified
in its entirety by reference to the full text of the Opinion. The Public
Stockholders are urged to read the Opinion in its entirety.
THE OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE BASIC ECONOMIC TERMS OF
THE TRANSACTION AS PROVIDED FOR IN THE SUBSCRIPTION AGREEMENT, THE
RECAPITALIZATION AGREEMENT AND THE MERGER AGREEMENT, TO THE PUBLIC
STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT
THE SPECIAL MEETING.
In conducting its analysis and arriving at the Opinion, Prudential
Securities reviewed such information and considered such financial data and
other factors as Prudential Securities deemed relevant under the
circumstances, including, among others, the following: (i) drafts, dated June
16, 1997, of the Subscription Agreement (excluding the schedules to the
Subscription Agreement), the Recapitalization Agreement, the Merger Agreement
and certain ancillary agreements and exhibits to the Subscription Agreement;
(ii) a draft dated June 27, 1997 of the Proxy Statement-Prospectus; (iii) a
copy of the Rural Telephone Finance Cooperative loan commitment letter, dated
April 14, 1997; (iv) certain publicly-available historical financial and
operating data of the Company, including, but not limited to, (a) the Annual
Reports on Form 10-K of the Company for the fiscal years ended December 31,
1994, 1995 and 1996, (b) the Quarterly Report on Form 10-Q of the Company for
the quarter ended March 31, 1997, (c) the Proxy Statement for the Annual
Meeting of the Company Stockholders held on April 30, 1997; (v) certain
information relating to New ATN and ECI, including projected income
statements, balance sheets and cash flow data for the fiscal years ending
December 31, 1997, 1998, 1999 and 2000 which were prepared by the management
of the Company; (vi) publicly available financial, operating, and stock market
data concerning certain companies engaged in businesses Prudential Securities
deemed comparable to ECI, or otherwise relevant to Prudential Securities'
inquiry; (vii) the historical stock prices and trading volumes, and current
trading multiplies of the Company Common Stock; and (viii) such other
financial studies, analyses, reviews and investigations that Prudential
Securities deemed appropriate. Prudential Securities
24
<PAGE>
assumed, with the Company's consent, that the drafts of the Subscription
Agreement, the Recapitalization Agreement and the Merger Agreement which
Prudential Securities reviewed would conform in all material respects to those
documents when in final form. In connection with its confirmation of the
Opinion on , 1997, Prudential Securities reviewed (i) executed copies of the
Subscription Agreement, the Recapitalization Agreement and the Merger
Agreement, and (ii) the forms of the Indemnity Agreement, the Technical
Assistance Agreement and the Tax Sharing and Indemnification Agreement
attached as Annex A to this Proxy Statement-Prospectus (which agreements
Prudential Securities assumed, with the Company's consent, would conform in
all material respects to those agreements when finally executed at or prior to
the Effective Date).
Prudential Securities met with the senior management of the Company to
discuss (i) the prospects for the respective businesses of New ATN and ECI,
(ii) their estimates of such businesses' future financial performance, (iii)
the financial impact of the transaction as provided for by the Subscription
Agreement, the Recapitalization Agreement and the Merger Agreement on the
respective companies and (iv) such other matters that Prudential Securities
deemed relevant.
In connection with its review and analysis and in arriving at the Opinion,
Prudential Securities assumed and relied upon the accuracy and completeness of
the financial and other information provided to it by the Company, and
Prudential Securities has not assumed any responsibility for the verification
of such information or any independent valuation or appraisal of any of the
assets or liabilities of New ATN or these to be transferred to or assumed by
ECI. With respect to certain projected financial data provided to Prudential
Securities by the Company for New ATN and for ECI, Prudential Securities has
assumed that such information (and the assumptions and bases therefor) has
been reasonably prepared and represents management's best currently available
estimate as to the future financial performance of New ATN and of ECI. The
Opinion is predicated on (i) the Company's transfer of certain of its assets
and liabilities to ECI qualifying as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and (ii) the distribution of ECI Common Stock to the holders of
the Company Common Stock being treated as tax-free for federal income tax
purposes to the Company under Section 355(c)(1) or 361(c)(1) of the Code and
to such holders under Section 355(a) of the Code. Further, the Opinion is
necessarily based on economic, financial and market conditions as they
existed, and can only be evaluated, as of the date of the Opinion.
The Opinion does not address nor should it be construed to address the
relative merits of the Transaction. In addition, the Opinion does not in any
manner address the prices at which the New ATN Common Stock or the ECI Common
Stock will trade following consummation of the Transaction.
In arriving at the Opinion, Prudential Securities performed a variety of
financial analyses, including those summarized herein. The summary set forth
below of the analyses presented to the Company Board at the July 7, 1997
meeting does not purport to be a complete description of the analyses
performed. The preparation of a fairness opinion is a complex process that
involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not necessarily
susceptible to partial analyses or summary description. Prudential Securities
believes that its analysis must be considered as a whole and that selecting
portions thereof or portions of the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
evaluation process underlying the Opinion. Prudential Securities made numerous
assumptions with respect to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond
the control of the Company, New ATN and ECI. Any estimates contained in
Prudential Securities' analyses are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable
than suggested by such analyses. Additionally, estimates of the values of
businesses and securities do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities may be sold. Accordingly,
such analyses and estimates are inherently subject to substantial uncertainty.
Subject to the foregoing, the following is a summary of the material financial
analyses presented by Prudential Securities to the Company Board in connection
with the Opinion.
25
<PAGE>
Comparable Company Analysis. A comparable company analysis was employed by
Prudential Securities to establish an implied per share valuation range for
the ECI Common Stock. Prudential Securities analyzed publicly-available
historical and projected financial results, including multiples of current
stock price to latest twelve months ("LTM") net income ("LTM Net Income"),
projected calendar year 1997 earnings per share ("1997 EPS") and projected
calendar year 1998 earnings per share ("1998 EPS"), enterprise value (defined
as current stock price multiplied by the number of shares outstanding plus net
indebtedness) to LTM earnings before interest and taxes ("LTM EBIT") and LTM
earnings before interest, taxes, depreciation and amortization ("LTM EBITDA")
of certain companies considered by Prudential Securities to be reasonably
similar to ECI. The companies analyzed included: Alltel Corporation, Aliant
Communications, Inc., Cincinnati Bell Telephone Company, Century Telephone
Enterprises, Inc., Frontier Corporation and Southern New England
Telecommunications Corporation (together, the "Comparable Companies"). All of
the trading multiples of the Comparable Companies were based on closing stock
prices on July 3, 1997 (the "July 3rd Closing Price") and all of the earnings
per share estimates of the Comparable Companies were published by First Call,
an on-line data service available to subscribers which compiles estimates
developed by research analysts. The estimates published by First Call were not
prepared in connection with the Transaction or at the request of Prudential
Securities. The Company provided the projected 1997 EPS and 1998 EPS estimates
of ECI.
The Comparable Companies were found to have a July 3rd Closing Price
estimated to be equal to 13.2x to 16.3x LTM Net Income, 12.6x to 21.6x 1997
EPS and 12.5x to 18.6x 1998 EPS, and an enterprise value estimated to be equal
to 7.6x to 10.9x LTM EBIT and 4.8x to 9.8x LTM EBITDA. Applying such multiples
to ECI's pro forma LTM Net Income, 1997 EPS, 1998 EPS, pro forma LTM EBIT and
pro forma LTM EBITDA resulted in an implied per share valuation of the ECI
Common Stock of $7.12 to $14.29.
None of the companies utilized in the above analysis for comparative
purposes is, of course, identical to ECI. Accordingly, a complete analysis of
the results of the foregoing calculations cannot be limited to a quantitative
review of such results and involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
Comparable Companies and other factors that could affect the public trading
value of the Comparable Companies as well as that of ECI.
Discounted Cash Flow Analysis--ECI. A discounted cash flow analysis was
employed by Prudential Securities to establish an implied per share valuation
for the ECI Common Stock. Prudential Securities calculated the net present
value of ECI's projected four-year stream of unlevered free cash flows and
projected fiscal year 2000 terminal values, which in turn, were based on a
range of multiples of ECI's projected fiscal year 2000 earnings before
interest, taxes, depreciation and amortization ("EBITDA"). The Company
provided the financial projections that Prudential Securities utilized in this
analysis. Prudential Securities applied discount rates ranging from 6.0% to
8.0% and multiples of fiscal year 2000 EBITDA ranging from 5.75x to 7.00x. The
discount rates utilized reflect ECI's pro forma cost of capital, and the
terminal EBITDA multiples reflect the range of trading multiples of the
Comparable Companies. Based on this analysis, Prudential Securities derived an
implied per share valuation of the ECI Common Stock of $9.86 to $14.92.
Discounted Cash Flow Analysis--New ATN. A discounted cash flow analysis was
employed by Prudential Securities to establish an implied per share valuation
for the New ATN Common Stock. Prudential Securities calculated the net present
value of New ATN's projected four year stream of unlevered free cash flows and
projected fiscal year 2000 terminal values, which in turn, were based on a
range of multiples of New ATN's projected fiscal year 2000 EBITDA. The Company
provided the financial projections that Prudential Securities utilized in this
analysis. Prudential Securities applied discount rates ranging from 20.0% to
30.0% and multiples of fiscal year 2000 EBITDA ranging from 2.50x to 3.50x.
The discount rates and terminal multiples reflect the declining profit margins
and volumes associated with audiotext and certain political and regulatory
risks. Prudential Securities adjusted for the 20% minority interest in Guyana
Telephone & Telegraph Company Limited. Prudential Securities derived an
implied per share valuation of the New ATN Common Stock of $6.72 to $11.73.
26
<PAGE>
Projected financial and other information concerning New ATN and ECI are not
necessarily indicative of future results. All projected financial information
is subject to numerous contingencies, many of which are beyond the control of
management of the Company, New ATN and ECI.
Stock Trading History and Current Trading Multiples. Prudential Securities
also analyzed the history of the trading prices and volume for the Company
Common Stock. Prudential Securities observed that between the Company's
initial public offering on November 14, 1991 and July 2, 1997, the Company
Common Stock traded in the range of $6.375 and $27.250 a share. Prudential
Securities also analyzed the trading multiples (as of July 2, 1997) of the
Company Common Stock. Prudential Securities analyzed that the Company was
trading (as of July 2, 1997) at 7.2x LTM earnings per share, 4.1x LTM EBITDA,
and 5.9x LTM EBIT.
The Company selected Prudential Securities to provide a fairness opinion
because it is a nationally recognized investment banking firm engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions and for other purposes, because it has substantial experience in
transactions similar to the Transaction and because it already had substantial
information about the Company as a result of its engagement by the Company in
1996 as described below. The engagement letter with Prudential Securities
provides that Prudential Securities will be paid an advisory fee equal to
$500,000. In addition, the engagement letter with Prudential Securities
provides that Prudential Securities will be reimbursed for its out-of-pocket
expenses and the Company, New ATN and ECI will indemnify Prudential Securities
and certain related persons against certain liabilities, including liabilities
under securities laws, arising out of the Transaction or its engagement. The
Company has also agreed to engage Prudential Securities for a fee of $50,000
to evaluate the relative values of certain assets of ATN-VI in connection with
the Company's application for the Tax Ruling. In 1996, the Company engaged
Prudential Securities as its financial advisor in connection with the
Company's exploration of strategic alternatives. In the ordinary course of
business, Prudential Securities may actively trade the shares of the Company
Common Stock for its own account and for the accounts of customers and
accordingly, may at any time hold a long or short position in such security.
DOCUMENTATION FOR THE TRANSACTION
The Transaction will be effected pursuant to the Subscription Agreement,
Recapitalization Agreement, Merger Agreement, Charter Amendment, Non-
Competition Agreement, Indemnity Agreement, Technical Assistance Agreement,
Tax Sharing and Indemnification Agreement and Employee Benefits Agreement
(collectively, the "Agreements"), copies of which are attached as Annex A to
this Proxy Statement-Prospectus. The following description of the terms and
conditions of these Agreements is qualified in its entirety by reference to
the Agreements. In the event of any inconsistency between the provisions of
any of the Agreements and the description thereof in this Proxy Statement-
Prospectus, the provisions of the Agreements shall control.
Division of Properties and Assets. The Subscription Agreement defines the
properties and assets to be transferred to ECI or retained by New ATN.
Pursuant to the Subscription Agreement, the Company will transfer to ECI the
following properties and assets of the Company in exchange for 10,959,131
shares of ECI Common Stock which will be distributed to Mr. Prosser and all
other holders of Company Common Stock other than Mr. Prior and the Trust:
(i) all of the outstanding capital stock of ATN-VI, which together with
its subsidiaries, Vitelco, Vitel Cellular and Vitelcom, currently conduct
all of the Company's Virgin Islands operations;
(ii) all of the outstanding capital stock of Atlantic Aircraft, Inc., a
subsidiary of the Company which owns and operates a jet aircraft and a
propeller aircraft used in the Company's business;
(iii) all indebtedness of any of the foregoing subsidiaries of the
Company (the "Transferred Subsidiaries") to the Company except $23 million
(the "Retained Indebtedness") currently owing from ATN-VI to the Company
(the remaining balance of Retained Indebtedness after giving effect to the
Closing Adjustment discussed below will be transferred to ECI); and
(iv) certain miscellaneous assets.
27
<PAGE>
New ATN will retain:
(i) all of the Company's stock and debt investments in the Guyana
Telephone & Telegraph Company Limited ("GT&T");
(ii) the Company's advisory agreement with GT&T, pursuant to which the
Company provides a wide variety of managerial, technical, sales and
marketing services to GT&T for a fee equal to 6% of GT&T's revenues; and
(iii) certain miscellaneous assets.
Division of Liabilities. Pursuant to the Subscription Agreement, (i) ECI
will assume all liabilities of the Company pertaining to the Transferred
Subsidiaries, the lease and other liabilities pertaining to the Company's St.
Croix executive office, and certain miscellaneous liabilities, (ii) New ATN
will remain responsible for all liabilities of the Company pertaining to GT&T,
the lease and other liabilities pertaining to the Company's St. Thomas
executive office, and certain miscellaneous liabilities and (iii), except as
otherwise described under "Indemnity" below, ECI and New ATN will each be
responsible for one-half of all remaining liabilities of the Company on the
Effective Date including contingent liabilities arising out of events
occurring on or prior to the Effective Date.
Closing Adjustments. The Subscription Agreement provides that ECI will cause
ATN-VI to pay New ATN in repayment of the $23 million of Retained Indebtedness
(or ECI will pay directly to New ATN if the Retained Indebtedness is
exhausted) $17.4 million plus (or minus) a Closing Adjustment. After the
Closing Adjustment has been finally determined and paid, New ATN will transfer
to ECI any remaining Retained Indebtedness. As the Closing Adjustment, ECI
will be credited with one-half of the carrying value on the Company's
unconsolidated balance sheet as of April 30, 1997 of all assets of the Company
other than capital stock of GT&T or the Transferred Subsidiaries or the
principal amount of indebtedness of GT&T or any of the Transferred
Subsidiaries to the Company, and ECI will be charged with one half of all
accrued liabilities on the unconsolidated balance sheet of the Company as of
April 30, 1997. Credits or charges also will be made for various cash
transfers to or from GT&T or the Retained Subsidiaries and for operating
expenses of the Company between April 30, 1997 and the Effective Date.
Repurchase and Recapitalization. In accordance with the terms of the
Recapitalization Agreement, the Company will repurchase 416,998 shares of
Company Common Stock owned by Mr. Prior and 348,564 shares of Company Common
Stock owned by the Trust at a repurchase price of $22.7284 per share, Mr.
Prior will exchange all of his remaining 2,927,038 shares of Company Common
Stock for a like number of shares of a new class of common stock of the
company to be designated Class B Common Stock, and Mr. Prosser will exchange
all of his 3,325,000 shares of Company Common Stock for a like number of
shares of a new class of common stock of the Company to be designated Class A
Common Stock. The Company will adopt the Charter Amendment to create Company
Class A Common Stock and Company Class B Common Stock to be exchanged with Mr.
Prior and Mr. Prosser, respectively, for their shares of Company Common Stock
as described above. The Class A Common Stock and Class B Common Stock will
vote together with the Company Common Stock (except where a separate class
vote is required by law) and will otherwise have the same attributes as the
Company Common Stock except that each of the new classes of Common Stock will
be entitled to receive different consideration than the other class or the
Company Common Stock receives in a merger, consolidation or liquidation of the
Company as determined by the Company Board.
Merger. In accordance with the terms of the Merger Agreement, Mergerco will
be merged with and into the Company with the Company surviving the Merger,
each share of Company Common Stock (but not the newly created Class A Common
Stock and Class B Common Stock to be issued prior to the Merger) will be
converted into the right to receive four-tenths (0.4) of a share of Company
Common Stock and one share of ECI Common Stock; the outstanding shares of
Class A Common Stock of the Company will be converted into the right to
receive in the aggregate 5,704,231 shares of ECI Common Stock, and the
outstanding shares of Class B
28
<PAGE>
Common Stock of the Company will be converted into the right to receive in the
aggregate 2,807,040 shares of Company Common Stock. Immediately after the
Merger, the outstanding common stock of New ATN and ECI will be held as
follows:
<TABLE>
<CAPTION>
NEW ATN ECI
---------------- -----------------
SHARES % SHARES %
--------- ------ ---------- ------
<S> <C> <C> <C> <C>
Mr. Prosser............................ -- -- 5,704,231 52.05
Mr. Prior.............................. 2,807,040 57.18 -- -
Public................................. 2,101,960 42.82 5,254,900 47.95
--------- ------ ---------- ------
Total................................ 4,909,000 100.00 10,959,131 100.00
========= ====== ========== ======
</TABLE>
Non-Competition. Pursuant to the Non-Competition Agreement, ECI and Mr.
Prosser are to agree not to engage in, or assist others in engaging in any
business which competes anywhere in the world in any material respect with the
provision by New ATN or any of its subsidiaries of telecommunications services
to persons who generate international audiotext telecommunications traffic
(except for the provision of any telecommunications services as a common
carrier which does not involve the installation of special equipment to
facilitate the generation of international audiotext telecommunications
traffic or the payment of any fee, commission or other compensation through
sharing of accounting or settlement rates, rate discounts or otherwise to
persons generating such traffic). The term of the Non-Competition Agreement
will be a period of 10 years after the Effective Date. The telecommunications
service covered by the Non-Competition Agreement include both carrying and/or
terminating telecommunications traffic. The agreement covers the provision of
services directly, or indirectly through service bureaus or other
intermediaries, to persons who generate the traffic, and the traffic covered
includes both telephone and computer traffic. Although international audiotext
traffic accounts for only a small percentage of the total minutes of
telecommunications traffic (including both local and international traffic)
carried by GT&T and although this traffic utilizes only a small fraction of
GT&T's physical facilities, international audiotext traffic generated in 1996
approximately 72% of GT&T's total revenues. In the Non-Competition Agreement,
ECI and Mr. Prosser will also agree to hold in strict confidence all
information of the proprietary nature relating to GT&T's and New ATN's
business of providing telecommunications services with regard to international
audiotext traffic.
Indemnity. In accordance with the provisions of the Indemnity Agreement:
(i) Mr. Prosser is to agree to indemnify New ATN, its subsidiaries after
the Effective Date, their respective officers, directors and agents and Mr.
Prior, individually and as Trustee of the Trust, from and against any and
all losses, liabilities, damages, costs and expenses ("Losses") relating to
or arising out of (a) any action, suit or proceeding brought by or on
behalf of any stockholder of the Company or of ECI arising out of or
relating to the repurchase by the Company of shares of Company Common Stock
owned by Mr. Prior and/or the Trust pursuant to the Recapitalization
Agreement or the number of shares of ECI Common Stock to be received by Mr.
Prosser or members of his family pursuant to the Merger Agreement or (b)
any action, suit or proceeding of any kind arising out of or relating to
any untrue or alleged untrue statement of a material fact contained in this
Proxy Statement-Prospectus, or the omission or alleged omission to state
herein a material fact required to be stated herein or necessary to make
the statements herein not misleading, but the indemnity described in this
clause (b) applies only with respect to the biographical information of Mr.
Prosser contained in this Proxy Statement-Prospectus and the information
contained herein concerning the beneficial ownership of Company Common
Stock by Mr. Prosser and the members of his family and his or their
affiliates,
(ii) Mr. Prior has agreed to indemnify ECI, the entities that will become
its subsidiaries after the Effective Date, their respective officers,
directors and agents and Mr. Prosser from and against any and all Losses
relating to or arising out of (a) any action, suit or proceeding brought by
or on behalf of any stockholder of the Company or ECI arising out of or
relating to the number of shares of Company Common Stock to be received by
Mr. Prior or members of his family pursuant to the Merger Agreement or (b)
any
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action, suit or proceeding of any kind arising out of or relating to any
untrue or alleged untrue statement of a material fact contained in this
Proxy Statement-Prospectus, or the omission or alleged omission to state
herein a material fact required to be stated herein or necessary to make
the statements herein not misleading, but the indemnity described in this
clause (b) applies only with respect to the biographical information of Mr.
Prior contained in this Proxy Statement-Prospectus and the information
contained herein concerning the beneficial ownership of Company Common
Stock by Mr. Prior and the members of his family and his or their
affiliates,
(iii) ECI has agreed to indemnify New ATN, its subsidiaries after the
Effective Date, their respective officers, directors and agents and Mr.
Prior from and against any and all Losses relating to or arising out of (a)
the business or operations of ECI and the Transferred Subsidiaries before
or after the Effective Date or any other subsidiaries of ECI after the
Effective Date, or any of the liabilities specifically to be assumed by ECI
pursuant to the Subscription Agreement or (b) any action, suit or
proceeding arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in this Proxy Statement-Prospectus
or the omission or alleged omission to state herein a material fact
required to be stated herein or necessary to make the statements herein not
misleading, but the indemnity described in this clause (b) applies only
with respect to the information contained in this Proxy Statement-
Prospectus concerning the business, prospects or planned or proposed
activities of ECI and its Subsidiaries after the Effective Date, the
activities of ECI or the Transferred Subsidiaries after April 30, 1997, and
prospective acquisitions of businesses or other transactions not in the
ordinary course of business planned or contemplated by ECI, the Transferred
Subsidiaries or Mr. Prosser.
(iv) New ATN has agreed to indemnify ECI and the entities which will
become its subsidiaries after the Effective Date, their respective
officers, directors and agents and Mr. Prosser from and against any and all
Losses relating to or arising out of (a) the business or operations
conducted by GT&T before or after the Effective Date or the business and
operations of New ATN after the Effective Date, liabilities of the Company
specifically excluded by the Subscription Agreement from the liabilities to
be assumed by ECI or (b) any action, suit or proceeding arising out of or
relating to any untrue or alleged untrue statement of a material fact
contained in this Proxy Statement-Prospectus or the omission or alleged
omission to state herein a material fact required to be stated herein or
necessary to make the statements herein not misleading, but the indemnity
described in this clause (b) applies only with respect to the information
contained in this Proxy Statement-Prospectus concerning the business,
prospects or planned or proposed activities of New ATN and its Subsidiaries
after the Effective Date, the activities of GT&T and New ATN with respect
to GT&T after April 30, 1997, and prospective acquisitions of businesses or
other transactions not in the ordinary course of business planned or
contemplated by GT&T or Mr. Prior.
Technical Assistance. New ATN and the Transferred Subsidiaries are to enter
into a Technical Assistance Agreement in connection with the Transaction. In
accordance with the terms of the Technical Assistance Agreement, each of the
Transferred Subsidiaries will agree to provide, at the request of the Company,
personnel and facilities to assist and support the Company in carrying out the
Company's continuing obligations to provide technical and professional
service, advice and assistance under an advisory contract it has entered into
with GT&T. The Transferred Subsidiaries are to be paid approximately 200% of
the direct compensation cost incurred by them in performing services at the
request of New ATN under the Technical Assistance Agreement and 100% of all
"out-of-pocket" expenses incurred by them in performing such services.
Tax Sharing and Indemnification. In accordance with the terms of the Tax
Sharing and Indemnification Agreement:
(i) New ATN, ECI, Mr. Prior and Mr. Prosser will each agree not to take
certain actions after the Effective Date which might jeopardize the
Transaction qualifying for tax-free treatment under the Code.
(ii) New ATN is to agree to be liable for, and shall indemnify and hold
harmless ECI and its affiliates from and against, (a) any taxes resulting
from any income or gain recognized as a result of the Transaction,
including any taxes resulting from any income or gain recognized as a
result of the Transaction failing to
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qualify for tax-free treatment under the Code, which arise from any breach
by New ATN of its representations or covenants under the Tax Sharing and
Indemnification Agreement, or from certain actions by New ATN or its
affiliates which may be inconsistent with the tax treatment of the
Transaction as contemplated in the application for the Tax Ruling, or the
inaccuracy of any factual statements or representations made in or in
connection with the application for the Tax Ruling with respect to the
activities of New ATN and its affiliates after the Effective Date, (b) any
taxes taken into account as debits for purposes of calculating the Final
Closing Adjustment under the terms of the Subscription Agreement, (c)
certain taxes arising from the Company's operations between April 30, 1997
and the Effective Date, (d) any withholding of foreign income taxes imposed
with respect to payments from GT&T to the Company and (e) fifty percent
(50%) of all other taxes of the Company or Aircraft Corp. with respect to
any period prior to and including the Effective Date, except for taxes
described in clauses (a), (b) or (c) of the following section (iii).
(iii) ECI is to agree to be liable for, and shall indemnify and hold
harmless New ATN and its affiliates from and against, (a) any taxes
resulting from any income or gain recognized as a result of the
Transaction, including any taxes resulting from any income or gain
recognized as a result of the Transaction failing to qualify for tax-free
treatment under the Code, which arise from any breach by ECI of its
representations or covenants under the Tax Sharing and Indemnification
Agreement, or from certain actions by ECI or its affiliates which may be
inconsistent with the tax treatment of the Transaction as contemplated the
application for the Tax Ruling, or the inaccuracy of any factual statements
or representations made in or in connection with the application for the
Tax Ruling with respect to the activities of ECI and its affiliates after
the Effective Date, (b) one hundred percent (100%) of all taxes of ECI
(computed on a separate company basis) with respect to any period prior to
and including the Effective Date, (c) any withholding of foreign income
taxes imposed with respect to payments from ATN-VI or any of its
subsidiaries to the Company except to the extent taken into account as
debits for purposes of computing the Final Closing Adjustment under the
terms of the Subscription Agreement, and (d) fifty percent (50%) of all
other taxes of the Company or Aircraft Corp. with respect to any period
prior to and including the Effective Date, except for taxes described in
clauses (a), (b), (c) and (d) of the preceding section (ii).
(iv) Mr. Prior is to agree to be liable for, and to indemnify and hold
harmless the Company, ECI, and their respective affiliates from and
against, any taxes resulting from any income or gain recognized as a result
of the Transaction, including any taxes resulting from any income or gain
recognized as a result of the Transaction failing to qualify for tax-free
treatment under the Code, which arise from (a) any breach of Mr. Prior's
representations and covenants under the Tax Sharing and Indemnification
Agreement or (b) the inaccuracy of any factual statements or
representations relating to Mr. Prior or members of Mr. Prior's family made
in the application for the Tax Ruling or in any certificate provided by Mr.
Prior in connection with the application for the Tax Ruling or in
connection with an opinion of tax counsel with respect to the Transaction.
(v) Mr. Prosser is to agree to be liable for, and to indemnify and hold
harmless the Company, ECI, and their respective affiliates from and against
any liability for any taxes resulting from any income or gain recognized as
a result of the Transaction, including any taxes resulting from any income
or gain recognized as a result of the Transaction failing to qualify for
tax-free treatment under the Code, which arise from (a) any breach of Mr.
Prosser's representations and covenants under the Tax Sharing and
Indemnification Agreement or (b) the inaccuracy of any factual statements
or representations relating to Mr. Prosser or members of Mr. Prosser's
family made in the application for the Tax Ruling or in any certificate
provided by Mr. Prosser in connection with the application for the Tax
Ruling or in connection with an opinion of tax counsel with respect to the
Transaction.
Employee Benefits. The Company and ECI are to enter into an Employee
Benefits Agreement in connection with the Transaction. In accordance with the
terms of the Employee Benefits Agreement, ECI is to agree to adopt as its own
the Company's Defined Benefit Plan for Salaried Employees, the Company's
Management Employees' Savings Plan, and the Company's Employees' Stock
Ownership Plan, each of the trusts
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(and all assets thereof) forming a part of such plans will be assumed by ECI,
and ECI and the Company are to agree to take all necessary actions, including
amendments to such plans (or the trusts forming a part thereof) in order for
ECI to be the sponsor and "Employer" as defined under such plans. All employee
benefit plans previously maintained by ATN-VI or Vitelco will continue to be
sponsored by such entities after the Effective Date. As of the Effective Date,
employees of New ATN and its subsidiaries will cease participation in all the
employee benefit plans maintained by ECI or any of its subsidiaries.
THE CREDIT FACILITY
In order to finance the repurchase of Company Common Stock from Mr. Prior
and the Trust, ATN-VI will enter into the Credit Facility with Rural Telephone
Finance Corporation ("RTFC"), as lender (the "Lender"). A copy of the Credit
Facility has been filed as an exhibit to the Registration Statement of which
this Proxy Statement--Prospectus forms a part, and the following summary of
the material terms of the Credit Facility is qualified in its entirety by
reference thereto.
Borrower. The borrower under the Credit Facility will be ATN-VI (the
"Borrower").
Structure. The Credit Facility will consist of a fifteen year secured term
loan facility in the amount of $18,315,789, including $915,789 for the
purchase of RTFC 5% Subordinated Capital Certificates ("SCCs"). Borrowings
under the Credit Facility will be utilized by the Borrower to fund the
repurchase of 765,562 shares of Company Common Stock currently owned by Mr.
Prior and the Trust.
Availability. The funds will be immediately available upon the satisfaction
of customary terms and conditions contained in the Credit Facility but in no
event later than the second anniversary of the date of the Credit Facility.
Security. The Credit Facility will be secured (i) by a first mortgage lien
on the assets and revenue of the Borrower and; (ii) pledges from the Borrower
of all of the present and future outstanding common stock of Vitelco, Vitelcom
and Vitel Cellular.
Interest. Borrowings under the term loan facility will bear interest at a
variable rate and/or fixed rate for long-term loans with 5% SCC's. The
Borrower may, at any time, convert all or a portion of outstanding loan funds
to a fixed interest rate for a Borrower-specified period of time without a
fee.
Equity Requirement. The Borrower will be required to purchase a non-interest
bearing amortizing SCC equal to 5% of the total amount borrowed. The SCC is
amortized annually, beginning one year after purchase of the SCC, in order to
maintain a 5% SCC-to-outstanding loan ratio. Amounts amortized are paid in
cash to the Borrower. The Borrower may elect to purchase the SCC using either
(a) the Borrowing Option pursuant to which the SCC is included in the loan
amount and is purchased with each advance of loan funds or (b) the Installment
Plan Option pursuant to which the Borrower purchases the SCCs in full with its
general funds over 5 years in 20 equal quarterly installments. If the Borrower
elects this option, the amount of equity requirement will be reduced to equal
5% of the loan proceeds.
Patronage Capital. Subject to approval of the Lender, Borrower will receive
a share of Lender's net margins in the form of patronage capital refunds.
Patronage capital is allocated annually to Borrower based on the percentage
that Borrower's interest payments contributed to Lender's gross margins.
Patronage capital is currently paid in cash (retired) in the following two
classes: Class One pursuant to which 70% of the allocation will be retired
during the year in which it is allocated and Class Two pursuant the balance of
the allocation will be retired on RTFC's Board approval rotation cycle
(currently 15 years).
Commitment Fee. A refundable commitment fee of $36,632 was paid to the
Lender. The total commitment fee will be refunded in its entirety at the time
of the final advance of the Loan. If the Loan if not fully advanced
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the fee will be refunded on a pro rata basis. The commitment fee will also be
refunded if the Transaction does not occur for reasons that, in Lender's
reasonable belief, are beyond the Borrower's control. Under all other
circumstances, the Commitment Fee will be retained by RTFC.
Covenants. The Credit Facility will contain the following material covenants
that restrict the Borrower and its subsidiaries from, among other things (i)
with certain exceptions, consolidation, mergers and sales of assets; (ii) with
certain exceptions, creating, incurring, assuming or suffering to exist other
indebtedness; (iii) with certain exceptions, making investments or loans in
any other person or entity; (iv) acquiring assets or capital stock of other
entities except for certain permitted acquisitions; and (v) redeeming,
retiring or purchasing capital stock of the Borrower or declaring or paying
dividends on the capital stock of the Borrower. In addition, the Credit
Facility will also require the Borrower to maintain (a) a specified average
"TIER", defined as, for a single year, interest on total net income plus
income taxes plus interest payable on long-term debt for such year divided by
interest on long-term debt payable for such year, as measured on a
consolidated basis for the two highest of the last three years and (b) a
specified average "DSC" ratio, defined, for a single year, as total net income
plus depreciation and amortization plus interest payable on long-term debt for
such years divided by principal and interest payable on long-term debt in such
year, as measured on a consolidated basis for the two highest of the last
three years.
MANNER OF EFFECTING THE TRANSACTION
The Transaction will occur promptly following the satisfaction of the
conditions described herein.
Prior to the Effective Date, the Company will select The Bank of New York
(or such other person or persons reasonably satisfactory to the Company) to
act as Exchange Agent for the Merger (the "Exchange Agent"). As soon as
practicable after the Effective Date, the Company will make available, and
each holder of record of Company Common Stock will be entitled to receive,
upon surrender to the Exchange Agent of one or more certificates
("Certificates") representing such Company Common Stock for cancellation,
certificates representing the number of shares of New ATN Common Stock and ECI
Common Stock into which such shares are converted in the Merger and cash in
consideration of fractional shares.
No certificates representing less than one full share of Company Common
Stock will be issued upon the surrender for exchange of Certificates
representing Company Common Stock pursuant to the Merger. In lieu of any such
fractional share, each holder of record of Company Common Stock who would
otherwise have been entitled to a fraction of a share of Company Common Stock
upon surrender of Certificates for exchange pursuant to the Merger will be
paid upon such surrender cash (without interest) in an amount equal to such
holder's proportionate interest in the net proceeds from the sale or sales in
the open market by the Exchange Agent, on behalf of all such holders, of the
aggregate fractional Company Common Stock issued pursuant to the Merger.
As soon as practicable following the Effective Date, the Exchange Agent
shall determine the excess of (i) the number of full shares of Company Common
Stock delivered to the Exchange Agent by the Company over (ii) the aggregate
number of full shares of Company Common Stock to be distributed to holders of
record of Company Common Stock (such excess being herein called the "Excess
Shares") pursuant to the Merger, and the Exchange Agent, as agent for the
former holders of record of Company Common Stock, will sell the Excess Shares
at the prevailing prices on the American Stock Exchange ("AMEX"). The sale of
the Excess Shares by the Exchange Agent will be executed on the AMEX through
one or more member firms of the AMEX and will be executed in round lots to the
extent practicable. New ATN and ECI will each bear one-half of the cost of all
commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent, incurred in
connection with such sale of Excess Shares. Until the net proceeds of such
sale have been distributed to the former holders of record of Company Common
Stock, the Exchange Agent will hold such proceeds in trust for such former
stockholders (the "Fractional Securities Fund"). As soon as
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practicable after the determination of the amount of cash to be paid to former
holders of record of Company Common Stock in lieu of any fractional interests,
the Exchange Agent will make available in accordance with the Merger Agreement
such amount to such former stockholders.
No holder of Company Common Stock will be required to pay cash or other
consideration for the shares of ECI Common Stock received in the Merger.
LISTING AND TRADING OF ECI COMMON STOCK
There is currently no public market for ECI Common Stock. Prices at which
ECI Common Stock may trade prior to the Transaction on a "when-issued" basis
or after the Transaction cannot be predicted. Until the ECI Common Stock is
fully distributed and an orderly market develops, the price at which trading
in such stock occurs may fluctuate significantly. The prices at which ECI
Common Stock trades will be determined by the marketplace and may be
influenced by many factors, including among others, the depth and liquidity of
the market for ECI Common Stock, investor perception of ECI and the Virgin
Islands business generally, ECI's dividend policy and general economic and
market conditions.
ECI has filed an application to list the ECI Common Stock on the AMEX under
the symbol " ."
Shares of ECI Common Stock distributed to the Company's stockholders in the
Transaction will be freely transferable, except for securities received by
persons who may be deemed to be "affiliates" of ECI within the meaning of Rule
145 under the Securities Act of 1933 as amended (the "Securities Act"). Such
affiliates may not publicly offer or sell the ECI Common Stock received in
connection with the Transaction except pursuant to a registration statement
under the Securities Act or pursuant to Rule 145 under the Securities Act.
LISTING AND TRADING OF NEW ATN COMMON STOCK
It is a condition to the Transaction that the Company Common Stock will
continue to be listed and traded on the AMEX after the Transaction under the
symbol "ANK." Following the Transaction, because of the transfer of the Virgin
Islands' operations of the Company to ECI, which will be a separate publicly-
traded company, New ATN's consolidated earnings will be substantially lower
than the Company's consolidated earnings prior to the Transaction.
Accordingly, as a result of the Transaction, the aggregate market value of New
ATN Common Stock immediately after the Effective Date is expected to be
significantly lower than the aggregate market value of Company Common Stock
immediately prior to the Effective Date. However, since the number of
outstanding shares of New ATN will be only 40% of the number of outstanding
shares immediately prior to the Effective Date, the Company is unable to
predict whether the trading price of one share of New ATN Common Stock will be
less than, equal to or more than the trading price of one share of Company
Common Stock prior to the Effective Date.
The combined trading prices of four-tenths (0.4) of a share of New ATN
Common Stock and one share of ECI Common Stock after the distribution of ECI
Common Stock to the holders of Company Common Stock and Class A Common Stock
(the "Distribution") may be less than, equal to or greater than the trading
price of the Company Common Stock prior to the Distribution. The prices at
which New ATN Common Stock trades after the Distribution will be determined by
the marketplace and may be influenced by many factors, including, among
others, the continuing depth and liquidity of the market for New ATN Common
Stock, investor perception of New ATN, investment conditions in Guyana
generally and general economic and market conditions.
EXPENSES
New ATN and ECI will each pay fifty percent (50%) of all costs and expenses
incurred by the Company in connection with the Transaction.
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CONDITIONS; TERMINATION
The Transaction is conditioned upon (i) approval of the Transaction at the
Special Meeting by the holders of a majority of the outstanding shares of
Company Common Stock, (ii) completion of $17.4 million of long-term financing
by ECI or ATN-VI, (iii) receipt of the Tax Ruling from the Internal Revenue
Service ("IRS") with respect to the tax-free treatment for U.S. federal income
tax purposes of the transactions contemplated by the Subscription Agreement
and the Merger Agreement to the Company and ECI and to the holders of Company
Common Stock and Class A Common Stock, (iv) the absence of any material
adverse changes in the businesses to be conducted after the Effective Date by
New ATN or ECI, respectively, (v) the Registration Statement on Form S-4 under
the Securities Act filed by ECI with the SEC having become effective and no
stop order being in effect, (vi) the listing of ECI Common Stock on the AMEX,
and (vii) the continued listing of New ATN Common Stock on the AMEX. The Tax
Ruling may be received significantly later than the date of the Special
Meeting. Even if all conditions are satisfied, Mr. Prior, Mr. Prosser and the
Company Board may, if they all agree, abandon, defer or modify the Transaction
at any time prior to the Effective Date. The Company Board will not, however,
consent to any changes in the terms of the Transaction after the Transaction
is approved by stockholders unless the Company Board determines that such
changes would not be materially adverse to the Company's stockholders.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary description of the material U.S. federal income
tax consequences of the Transaction. This summary is for general information
purposes only and is not intended as a complete description of all of the tax
consequences of the Transaction and does not discuss tax consequences under
the laws of any state or local government or of any other jurisdiction.
Moreover, the tax treatment of a stockholder may vary depending upon his, her
or its particular situation. In this regard, certain stockholders (including,
without limitation, (i) insurance companies, tax-exempt organizations,
financial institutions or broker-dealers, certain U.S. expatriates and persons
who are not citizens or residents of the United States or who are foreign
corporations, foreign partnerships or foreign trusts or estates as defined for
U.S. federal income tax purposes, and (ii) stockholders that hold shares as
part of a position in a "straddle" or as part of a "hedging" or "conversion"
transaction for U.S. federal income tax purposes and stockholders with a
"functional currency" other than the U.S. dollar) may be subject to special
rules not discussed below. In addition, this summary applies only to shares
which are held as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code").
THE FOLLOWING DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE
CODE, FINAL AND TEMPORARY TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT
TO CHANGE WHICH MAY OR MAY NOT BE RETROACTIVE, AND ANY SUCH CHANGES COULD
AFFECT THE VALIDITY OF THE FOLLOWING DISCUSSION. SEE "--POSSIBLE FUTURE
LEGISLATION" BELOW.
EACH STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE TRANSACTION DESCRIBED
HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
TAX LAWS, AND THE POSSIBLE EFFECTS OF CHANGES OF APPLICABLE TAX LAWS.
Tax Ruling The Company has applied for the Tax Ruling from the IRS, to the
effect, among other things, that for U.S. federal income tax purposes:
(a) the Company's transfer of certain of its assets and liabilities to
ECI (the "Contribution") will be a tax-free reorganization under Section
368(a)(1)(D) of the Code and, therefore, will be tax-free to the Company
and ECI; and
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(b) the distribution of ECI Common Stock to the holders of Company Common
Stock and Class A Common Stock (the "Distribution") will be tax-free to the
Company under Section 355(c)(1) or 361(c)(1) of the Code and to such
holders under Section 355(a) of the Code.
Receipt of the Tax Ruling is a condition to consummation of the Transaction.
The Company's request for the Tax Ruling contains certain representations as
to factual matters, including among other representations, that (i) there is
no plan or intention by Mr. Prior or Mr. Prosser, and the management of the
Company, to its best knowledge, is not aware of any plan or intention on the
part of any particular remaining shareholder of the Company, to sell,
exchange, transfer by gift, or otherwise dispose of any stock in either the
Company or ECI after the Transaction, (ii) there is no plan or intention by
either the Company or ECI to purchase any of its outstanding stock after the
Transaction (subject to certain exceptions), and (iii) there is no plan or
intention to liquidate either the Company or ECI, to merge either the Company
or ECI with any other corporation, or to sell or otherwise dispose of the
assets of either the Company or ECI after the Transaction, except in the
ordinary course of business. The Company's request for the Tax Ruling also
contains certain factual statements regarding the Company's provision of a
wide variety of managerial, technical, sales and marketing services to GT&T
pursuant to the advisory agreement with GT&T and a representation to the
effect that the Company will continue to provide such services to GT&T as
described in the request for the Tax Ruling.
The Tax Ruling, while generally binding on the IRS, may under certain
circumstances be retroactively revoked or modified by the IRS. The Tax Ruling
will be based on the facts and representations contained in the Company's
request for the Tax Ruling. Generally, the Tax Ruling would not be revoked or
modified retroactively provided that (i) there has been no misstatement or
omission of material facts, (ii) the facts at the time of the Transaction are
not materially different from the facts upon which the Tax Ruling was based,
(iii) the representations upon which the Tax Ruling was based are not
incomplete or untrue in any material respect, and (iv) there has been no
change in the applicable law. See "Risk Factors--Risks Relating to the
Transaction--Potential Federal Income Tax Liabilities."
The Contribution. It is expected that the Company will receive a Tax Ruling
that the Contribution will qualify as a tax-free reorganization under Section
368(a)(1)(D) of the Code. Assuming that the Contribution so qualifies, (i) no
gain or loss will be recognized by, and no amount will be included in the
income of, the Company or ECI as a result of the Contribution, (ii) the tax
basis of the property received by ECI in the Contribution will be the same as
the tax basis of such property in the hands of the Company immediately prior
to the Contribution, and (iii) the holding period of the property received by
ECI in the Contribution will include the period during which such property was
held by the Company.
The Repurchase. It is expected that, assuming the Transaction is consummated
in 1997, the cash received by Mr. Prior and the Trust pursuant to the
repurchase of all of the Trust's and certain of Mr. Prior's shares of Company
Common Stock will be treated as a dividend to the extent of the Company's
earnings and profits (as calculated for U.S. federal income tax purposes) for
1997 (the Company had no accumulated earnings and profits as of the beginning
of 1997) and, to the extent the cash received exceeds the sum of the Company's
earnings and profits for 1997 and the tax basis of Mr. Prior's and the Trust's
shares so repurchased, as gain from the sale of the shares so repurchased.
The Distribution. It is expected that the Company will receive a Tax Ruling
that the Distribution will qualify as a tax-free distribution under Section
355 of the Code. Assuming that the Distribution so qualifies, (i) the holders
of Company Common Stock will not recognize any gain or loss upon receipt
solely of shares of ECI Common Stock, (ii) each holder of Company Common Stock
will allocate his, her or its aggregate tax basis in the Company Common Stock
immediately before the Distribution between the Company Common Stock and the
ECI Common Stock in proportion to their respective fair market values at the
time of the Distribution, (iii) the holding period of each holder of Company
Common Stock for the ECI Common Stock will include the holding period for his,
her or its Company Common Stock, provided that the Company Common Stock is
held
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as a capital asset at the time of the Distribution, and (iv) the Company will
not recognize any gain or loss as a result of the Distribution. The tax
consequences to Mr. Prosser upon his receipt of shares of ECI Common Stock
will be similar to those described above with respect to the holders of
Company Common Stock (except for clause (ii)).
Current Treasury regulations require that each holder of stock of the
Company which receives ECI Common Stock pursuant to the Distribution to attach
to his, her or its U.S. federal income tax return for the year in which the
Distribution occurs a detailed statement setting forth such data as may be
appropriate to show the applicability of Section 355 of the Code to the
Distribution.
If the Distribution did not qualify as a tax-free distribution under Section
355 of the Code, then each holder of Company Common Stock who received shares
of ECI Common Stock in the Distribution, other than Mr. Prosser, would be
treated as if such stockholder received a taxable distribution in an amount
equal to the fair market value of the ECI Common Stock received. Such
distribution would be treated as (i) a dividend to the extent of such
stockholder's pro rata share of the Company's earnings and profits for 1997
(the computation of which would include any gain recognized by the Company on
the Distribution, as discussed below), then (ii) a reduction in such
stockholder's tax basis in Company Common Stock to the extent the amount
received exceeded the amount referenced in clause (i), and then (iii) gain
from the sale or exchange of Company Common Stock to the extent the amount
received exceeded the sum of the amounts referenced in clauses (i) and (ii).
As a result of the complete termination of Mr. Prosser's interest in the
Company, the distribution of ECI Common Stock to Mr. Prosser would be treated
as capital gain to the extent that the fair market value of the ECI Common
Stock received by him exceeded his tax basis in the stock of the Company
exchanged therefor. Each stockholder's tax basis in his, her or its ECI Common
Stock would be equal to the fair market value of such stock at the time of the
Distribution.
In addition, if the Distribution did not qualify as a tax-free distribution
under Section 355 of the Code, then, in general, a corporate level U.S.
federal income tax would be payable by the consolidated group of which the
Company is the common parent based upon the gain (computed as the difference
between the fair market value of the ECI Common Stock distributed and the
Company's adjusted tax basis in such stock) recognized by the Company on the
Distribution. Under the terms of the Tax Sharing Agreement, each of ECI and
the Company would be liable for 50% of any such additional taxes incurred by
the Company by reason of the Distribution being taxable. However, if the
Distribution failed to qualify for tax-free treatment under Section 355 of
Code as a result of the inaccuracy of certain factual statements or
representations made with respect to Mr. Prior or Mr. Prosser in connection
with the request for the Tax Ruling or as a result of Mr. Prior or Mr. Prosser
taking any action which was inconsistent with any factual statements or
representations or the tax treatment of the Distribution as contemplated in
the Tax Ruling, then Mr. Prior or Mr. Prosser, as the case may be, would be
required to indemnify each of ECI and the Company for any such additional
taxes incurred by the Company. If the Distribution failed to qualify for tax-
free treatment under Section 355 of Code as a result of the inaccuracy of
certain factual statements or representations made with respect to ECI or the
Company in connection with the request for the Tax Ruling or as a result of
ECI or the Company taking any action which was inconsistent with any factual
statements or representations or the tax treatment of the Distribution as
contemplated in the Tax Ruling, then ECI or the Company, as the case may be,
would be liable for 100% of any such additional taxes incurred by the Company.
See the discussion of the Tax Sharing Agreement under "The Transaction--
Documentation for the Transaction."
Recent Legislation. Legislation was recently enacted (the "Legislation")
which, in general terms, provides that, if the distributing corporation or the
controlled corporation in a transaction otherwise qualifying as a tax-free
distribution under Section 355 of the Code is acquired pursuant to a plan or
arrangement in existence on the date of the distribution to acquire that
corporation (a "Disqualifying Acquisition"), then the distributing corporation
will recognize taxable gain immediately before the distribution in an amount
equal to the excess of the fair market value of the stock of the controlled
corporation over the distributing corporation's adjusted tax basis in that
stock. A Disqualifying Acquisition would be treated as occurring if a person
or persons acquired
37
<PAGE>
50% or more of the stock of the distributing corporation or the controlled
corporation, as the case may be, pursuant to such a plan or arrangement, and a
plan or arrangement to acquire that corporation would be presumed to exist on
the date of the distribution if the acquisition occurred during the four-year
period commencing two years prior to the distribution (unless it could be
demonstrated that the acquisition was unrelated to the distribution).
The Legislation would apply to the Distribution if a Disqualifying
Acquisition of the Company or ECI occurred after the date of the Distribution.
The Tax Sharing Agreement contains provisions which are intended to prevent
the occurrence of such a Disqualifying Acquisition during the two-year period
following the date of the Distribution. Accordingly, it can be expected that
New ATN, ECI, Mr. Prior and Mr. Prosser will not enter into any transaction
which might constitute a Disqualifying Acquisition, and, consequently, the
ability of New ATN and ECI to enter into business combinations with other
companies or to issue additional stock may be restricted.
Fractional Shares. No fractional shares of New ATN Common Stock will be
issued in the Transaction. A holder of Company Common Stock who receives cash
in lieu of fractional shares of New ATN Common Stock will be treated as having
received such fractional shares of New ATN Common Stock in the Transaction and
then as having received such cash in a sale of such fractional shares of New
ATN Common Stock. Such holder generally will recognize gain or loss pursuant
to such deemed sale equal to the difference (if any) between the amount of
cash received and such holder's adjusted tax basis in the fractional share of
New ATN Common Stock deemed to be received and then sold. Such gain or loss
will be capital gain or loss (provided the Company Common Stock is held as a
capital asset at the Effective Date).
38
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
The following selected historical financial data of the Company and its
subsidiaries as of and for the years ended December 31, 1996, 1995, 1994, 1993
and 1992 have been derived from the Company's audited consolidated financial
statements. The following selected historical financial data for the three
months ended March 31, 1997 and 1996 have been derived from the unaudited
consolidated interim financial statements which, in the opinion of management,
reflects all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation. The historical data presented
below includes the financial data of the businesses to be transferred to ECI
in the Transaction as well as those businesses to be retained by New ATN. The
selected historical consolidated financial data should be read in conjunction
with the Company's audited consolidated financial statements and related notes
thereto, as of December 31, 1996 and for each of the three years in the period
ended December 31, 1996 and the Company's quarterly report on Form 10-Q for
the three months ended March 31, 1997 which are incorporated by reference in
this Proxy Statement-Prospectus. The selected historical consolidated
financial data for the three months ended March 31, 1997 are not necessarily
indicative of the operating results to be expected for the entire fiscal year.
All dollar amounts are in thousands, except per share data.
39
<PAGE>
SELECTED STATEMENT OF OPERATIONS DATA OF THE COMPANY
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Telephone operations:
Revenues:
Local exchange serv-
ice.................. $22,846 $22,345 $23,836 $22,966 $25,585 $6,311 $ 7,283
Access charges........ 13,493 14,845 14,689 13,608 16,124 3,364 4,192
International long-
distance revenues.... 37,495 44,299 76,820 128,939 145,080 35,241 30,862
Universal Service
Fund................. 11,168 13,201 12,081 12,151 11,360 2,802 3,591
Billing and other rev-
enues................ 4,427 4,490 4,525 4,238 5,290 1,029 1,530
Directory advertising. 3,420 3,020 2,916 2,730 2,563 649 487
------- ------- ------- ------- ------- ------ -------
Total revenue.......... 92,849 102,200 134,867 184,632 206,002 49,396 47,945
Total expense.......... 53,356 66,307 89,320 130,575 155,174 36,376 36,015
------- ------- ------- ------- ------- ------ -------
Income from telephone
operations............. 39,493 35,893 45,547 54,057 50,828 13,020 11,930
Income from other opera-
tions.................. 1,443 1,550 1,942 2,639 2,684 850 319
Non-operating revenues
and expenses (other
than (4,653) (12,921) (9,341) (10,219) (9,458) (4,442) (1,668)
interest), net......... ------- ------- ------- ------- ------- ------ -------
Income from continuing
operations before in-
terest expense,
income taxes and minor-
ity interest........... 36,283 24,522 38,148 46,477 44,054 9,428 10,581
Interest expense, net... 9,109 11,837 12,798 11,540 10,831 2,726 2,483
------- ------- ------- ------- ------- ------ -------
Income from continuing
operations before in-
come taxes
and minority interest.. 27,174 12,685 25,350 34,937 33,223 6,702 8,098
Income taxes............ 9,562 5,458 10,465 15,250 13,039 2,924 2,909
------- ------- ------- ------- ------- ------ -------
Income from continuing
operations before mi-
nority interest........ 17,612 7,227 14,885 19,687 20,184 3,778 5,189
Minority interest....... (2,056) (1,030) (1,743) (2,477) (2,177) (592) (307)
------- ------- ------- ------- ------- ------ -------
Income from continuing $15,556 $ 6,197 $13,142 $17,210 $18,007 $3,186 $ 4,882
operations............. ======= ======= ======= ======= ======= ====== =======
Income per share from
continuing operations.. $ 1.27 $ 0.50 $ 1.07 $ 1.40 $ 1.47 $ 0.26 $ 0.40
Dividends per share..... $ 0.32 $ 0.20 -- -- -- -- --
Weighted average number
of shares.............. 12,273 12,273 12,273 12,273 12,273 12,273 12,273
</TABLE>
SELECTED BALANCE SHEET DATA OF THE COMPANY
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
-------------------------------------------- ------------
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Fixed assets, net....... $225,886 $249,415 $242,548 $226,660 $251,996 $251,655
Total assets............ 305,196 326,741 332,048 363,874 382,834 379,225
Short-term debt (includ-
ing current portion of
long-term debt)........ 10,540 19,362 19,249 24,841 30,095 29,746
Long-term debt, net..... 149,814 142,630 133,149 120,297 109,737 107,522
Stockholders' equity.... 99,959 101,300 114,861 130,956 149,791 154,673
</TABLE>
40
<PAGE>
NEW ATN
PRO FORMA FINANCIAL DATA
The following are unaudited pro forma consolidated condensed statements of
operations and consolidated condensed balance sheet for New ATN. The pro forma
consolidated condensed balance sheet as of March 31, 1997 give effect to the
Transaction, as if it occurred on March 31, 1997. The unaudited pro forma
consolidated condensed statement of operations for the year ended December 31,
1996 and the three months ended March 31, 1997 give effect to the Transaction,
as if it occurred at the beginning of the period indicated. The pro forma
adjustments are described in the accompanying notes hereto. The pro forma
consolidated condensed balance sheet and statements of operations should be
read in conjunction with the Company's consolidated financial statements and
notes thereto, as of December 31, 1996 and for each of the three years in the
period ended December 31, 1996 and the Company's quarterly report on Form 10-Q
for the three months ended March 31, 1997 which are incorporated by reference
in this Proxy Statement-Prospectus. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the Transaction had
occurred at the beginning of the periods indicated, nor is it necessarily
indicative of future operating results or financial position.
41
<PAGE>
NEW ATN
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS RESULTS
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Cash........................................ $ 12,465 $ (6,799)(1) $ 5,881
17,400 (2)
(17,400)(3)
215 (4)
Accounts receivable......................... 60,117 (14,898)(1) 45,014
(205)(4)
Other current assets........................ 13,110 (10,928)(1) 2,182
-------- --------- --------
Total current assets........................ 85,692 (32,615) 53,077
Net fixed assets............................ 251,655 (156,724)(1) 94,363
(568)(4)
Other assets................................ 41,878 (31,931)(1) 9,947
-------- --------- --------
$379,225 $(221,838) $157,387
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities......................... $ 62,143 $ (40,919)(1) $ 15,724
($5,500)(4)
Long-term debt.............................. 107,522 (88,436)(1) 18,839
(247)(4)
Other liabilities and minority interest..... 54,887 (21,196)(1) 33,691
Total stockholders' equity.................. 154,673 (70,729)(1) 89,133
17,400 (2)
(17,400)(3)
5,189 (4)
-------- --------- --------
$379,225 $(221,838) $157,387
======== ========= ========
</TABLE>
The accompanying notes are an integral part of this statement.
42
<PAGE>
NEW ATN
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 THREE MONTHS ENDED MARCH 31, 1997
----------------------------------- ------------------------------------------
COMPANY COMPANY
HISTORICAL PRO FORMA PRO FORMA HISTORICAL PRO FORMA PRO FORMA
RESULTS ADJUSTMENTS RESULTS RESULTS ADJUSTMENTS RESULTS
---------- ----------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Telephone operations:
Net revenues........... $206,002 ($57,749)(1) $148,253 $ 47,945 ($16,203)(1) $ 31,742
Net expenses........... 155,174 (40,912)(1) 114,262 36,015 (10,458)(1) 25,557
-------- -------- -------- ---------- ----------- ----------
Income from telephone
operations............. 50,828 (16,837)(1) 33,991 11,930 (5,745)(1) 6,185
Income from other opera-
tions.................. 2,684 (2,684)(1) -- 319 (319)(1) --
Non-operating revenues
and expenses (other
than interest), net.... (9,458) 2,588 (1) (6,870) (1,668) 708 (1) (960)
-------- -------- -------- ---------- ----------- ----------
Income from continuing
operations before
interest
expense, minority
interest and income
taxes.................. 44,054 (16,933)(1) 27,121 10,581 (5,356)(1) 5,225
Interest expense, net... 10,831 (9,082)(1) 3,399 2,483 (2,074)(1) 814
1,650 (5) 405 (5)
-------- -------- -------- ---------- ----------- ----------
Income from continuing
operations before
income taxes
and minority interest.. 33,223 (9,501)(1) 23,722 8,098 (3,687)(1) 4,411
Income taxes............ 13,039 (2,215)(1) 10,263 2,909 (855)(1) 1,916
(561)(5) (138)(5)
-------- -------- -------- ---------- ----------- ----------
Income from continuing
operations before
minority interest...... 20,184 (6,725)(1) 13,459 5,189 (2,694)(1) 2,495
Minority interest....... (2,177) 81 (1) (2,096) (307) 7 (1) (300)
-------- -------- -------- ---------- ----------- ----------
Income from continuing
operations............. $ 18,007 ($6,644) $ 11,363 $ 4,882 ($2,687) $ 2,195
======== ======== ======== ========== =========== ==========
Income per share from
continuing operations.. $ 2.31 $ 0.45
======== ==========
Weighted average shares
outstanding............ 4,909 4,909
======== ==========
</TABLE>
The accompanying notes are integral part of this statement.
43
<PAGE>
NEW ATN
NOTES TO PRO FORMA FINANCIAL DATA
(1) To reflect the transfer of the capital stock of New ATN and Atlantic
Aircraft, Inc. to ECI.
(2) To reflect the $17.4 million payment of intercompany debt by ATN-VI.
(3) To reflect the repurchase of 765,564 shares of Company stock.
(4) To reflect the net transfer of miscellaneous assets, the assumption of
certain bank indebtedness by ECI and the payment of the final closing
adjustment based on assumed transaction costs of $1.5 million.
(5) To reflect the reversal of (a) interest income paid by the Transferred
Subsidiaries to the Company, (b) interest expense on certain bank
indebtedness to be assumed by ECI and (c) the related tax impact of such
items.
(6) The Company shares certain general and administrative costs with its
affiliated entity, ATN-VI. These shared costs have historically been
allocated to ATN-VI in approximately the same proportion as operating
revenues of ATN-VI bears to the Company's total operating revenues.
Management believes the allocation methods used are reasonable. However,
such costs are not necessarily indicative of the costs that would have been
incurred if the companies had been operated as unaffiliated entities. It is
not practical to estimate these costs on a stand-alone basis.
44
<PAGE>
BUSINESS AND PROPERTIES OF NEW ATN
On and immediately after the Effective Date, New ATN's sole operating
subsidiary will be the Guyana Telephone & Telegraph Company Limited ("GT&T").
GT&T provides all local service and domestic long-distance telecommunications
service within the Co-operative Republic of Guyana and international telephone
service between Guyana and foreign points. During 1996, approximately $148
million, or 100% (on a pro forma basis), of New ATN's total revenues was
derived from the operations of GT&T.
The Company acquired 80% of the capital stock of GT&T from the government of
Guyana for $16.5 million on January 28, 1991 (the "GT&T Acquisition"). The
government of Guyana owns the remaining 20% of the capital stock of GT&T. In
1991, GT&T was a newly organized company that had acquired substantially all
of the assets and certain liabilities of Guyana Telecommunication Corporation
("GTC"), a corporation wholly owned by the government of Guyana. GTC had been
the exclusive provider of telecommunications services in Guyana for more than
20 years.
The Company also provides managerial, technical, sales and marketing
services to GT&T in exchange for advisory fees equal to 6% of Revenues. See
"Risk Factors--Risks Relating to New ATN--Regulatory Risks."
New ATN expects from time to time to evaluate opportunities for establishing
or acquiring other telecommunications business through privatization of
government-owned business or otherwise in the Caribbean area and in developing
countries in other parts of the world, and may make investments in such
businesses in the future. New ATN expects to focus its attention on wire line
and cellular telephone business and cable television. See "--Pending
Acquisition."
INTERNATIONAL TRAFFIC
GT&T's revenues and earnings are highly dependent upon international long-
distance calls, particularly international audiotext traffic, other calls
originating outside of Guyana and collect calls from Guyana to foreign points.
The following table sets forth data with respect to the volume of GT&T's
international traffic for the periods indicated:
INTERNATIONAL TRAFFIC (IN THOUSANDS OF MINUTES)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------- ---------------------------
1994 1995 1996 1996 1997
------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inbound Paid and
Outbound Collect....... 35,784 (38%) 37,920 (24%) 40,350 (21%) 19,496 (21%) 21,449 (25%)
Audio Text.............. 39,291 (42%) 101,763 (63%) 122,476 (64%) 59,551 (64%) 52,112 (60%)
------ ------ ------- ------ ------- ------ ------ ------ ------ ------
Total Inbound........... 75,075 (80%) 139,683 (87%) 162,826 (85%) 79,047 (85%) 73,561 (85%)
Outbound................ 18,368 (20%) 20,725 (13%) 29,768 (15%) 13,771 (15%) 12,681 (15%)
------ ------ ------- ------ ------- ------ ------ ------ ------ ------
Total................. 93,443 (100%) 160,408 (100%) 192,594 (100%) 92,818 (100%) 86,242 (100%)
====== ====== ======= ====== ======= ====== ====== ====== ====== ======
</TABLE>
GT&T has agreements with foreign telecommunications administrations and
private carriers covering all international calls into or out of Guyana. These
agreements govern the rates of payment by GT&T to the foreign carriers for the
use of their facilities in connecting international calls billed in Guyana,
and by the foreign carriers to GT&T for the use of its facilities in
connecting international calls billed abroad. The rates of payment under such
agreements are negotiated with each foreign carrier and are known as
"accounting rates."
45
<PAGE>
The different classes of international traffic described in the above table
produce significantly different profit margins for GT&T. In the case of
regular inbound traffic and outbound collect traffic, GT&T receives a payment
from the foreign telecommunications carrier equal to one-half of the
applicable "accounting rate" (e.g., in the case of traffic from the United
States, a payment of 85 cents per minute), and GT&T has no significant direct
expenses associated with such traffic except for earth station, satellite and
tropospheric system costs which are applicable to all of GT&T's international
traffic. In the case of audiotext traffic, GT&T receives a payment from the
foreign carrier equal to one-half of the applicable accounting rate, and GT&T
pays a fee or commission to the audiotext traffic provider at rates which are
negotiated from time to time and are typically more than half of the amount
received by GT&T from the foreign carrier. In the case of outbound
international traffic, GT&T must pay the foreign carrier one-half of the
applicable international accounting rate, and GT&T collects from its
subscriber a rate which is regulated by the PUC. Currently, the amount which
GT&T collects from its subscribers for outbound international traffic is
usually less than the amount which GT&T is required to pay the foreign carrier
(e.g., for the United States, GT&T collects approximately $.74 per minute and
pays the carrier $.85 per minute). GT&T does not allow a significant volume of
collect calls into Guyana.
Historically, the volume of calls into Guyana from the United States, Canada
and the United Kingdom (including credit card and collect calls from Guyana)
has greatly exceeded the volume of paid outbound calls from Guyana to these
countries. Except for audiotext traffic, the volume of traffic with other
countries has been more evenly balanced. Management of GT&T believes that the
disparity in traffic with these countries, which has produced a steady stream
of hard currency revenues for GT&T, stems from the fact that the vast majority
of GT&T's traffic with these countries consists of personal calls between
Guyanese expatriates and their friends and family in Guyana and that the
average income of most Guyanese residents is substantially lower than that of
their Guyanese expatriate friends or relatives in these countries. There can
be no assurance that, as GT&T expands and improves its local telephone
facilities and changes occur in the Guyanese economy, inbound international
traffic will continue to be as significant a part of GT&T's total revenues.
Any decrease in the net margin of inbound over outbound traffic is likely to
have an adverse effect on GT&T's earnings. In addition, the FCC issued a news
release in August 1997 in which it described a Report and Order adopting
mandatory international accounting rates that will result in significant
reductions over the next four years, in the accounting rates used by U.S.
carriers in paying GT&T for terminating U.S. traffic in Guyana. See "--
Regulation."
In 1996, GT&T's outbound traffic increased 44% over the prior year while
inbound and outbound collect traffic (other than audiotext) increased only 6%.
GT&T believes that this was due to a substantial reduction in GT&T's rates for
outbound traffic which was ordered by the PUC in October 1995. This PUC order
was voided by the Guyana High Court in January 1997, which had the result of
reinstating for the time being GT&T's rates for outbound traffic which existed
prior to October 1995. This increase in rates may result in some diminution in
the volume of GT&T's unprofitable outbound traffic and some increase in the
volume of its profitable inbound and outbound collect traffic in 1997.
A significant portion of GT&T's international traffic arises from the
provision by GT&T of telecommunications services to audiotext providers in a
number of foreign countries. GT&T began providing telecommunications services
to audiotext providers in June 1992 and its audiotext traffic has increased
significantly since that date. GT&T's audiotext revenues amounted to
approximately $39 million, $91 million, and $106 million in 1994, 1995 and
1996, respectively. GT&T's volume of audiotext traffic peaked in August 1995
at slightly in excess of 10 million minutes per month and fluctuated between
approximately 9 million and 10 million minutes per month in 1996.
Audiotext traffic and audiotext revenues averaged about 12 percent less and
35 percent less, respectively, in the first six months of 1997, compared to
the same period a year earlier. GT&T's profit margins from audiotext also
significantly declined. Management attributed these declines to increased
competition, changes in the traffic mix, reduction in some accounting rates,
the strength of the U.S. dollar against certain foreign currencies, and a
foreign carrier's mislabeling the origin of certain traffic. Also, from late
1996 through the current year, a foreign carrier required GT&T to bear part of
the risk of non-collection for audiotext calls. Previously, this risk was
assumed by the sending carrier.
46
<PAGE>
Audiotext providers offer telephone information services comparable to those
available in the United States on an area code 900 basis. By making a
telephone call, the caller can obtain information (generally in the form of a
recorded message) on subjects such as weather, sports, business news or
material of a sexual nature. Some audiotext providers also establish "chat
lines" on which the callers can talk to one another.
GT&T is one of many telephone companies around the world that are providing
telecommunications services to international audiotext providers. Audiotext
traffic utilizes only excess capacity on GT&T's international circuits and
GT&T's main switch in Georgetown. No use of GT&T's local network within Guyana
is involved, and none of the telephone numbers assigned to audiotext providers
by GT&T can be accessed by a normal telephone call made in Guyana. GT&T's
agreements with audiotext providers are subject to termination by either party
on short notice, and an audiotext provider can readily shift its operations to
another foreign telecommunications carrier merely by changing the telephone
numbers in its advertisements, if the other carrier provides better service or
higher compensation.
At the present time, in the United States and many other countries,
audiotext calls to GT&T or another foreign telecommunications carrier are
treated as ordinary international traffic and are not subject to the
regulations applicable to domestic audiotext traffic. GT&T's agreements with
audiotext providers obligate such providers to comply with applicable
regulations in the countries in which they advertise their services and to
refrain from using obscene or indecent material. From time to time a country's
regulatory authorities or national telecommunications carrier have taken steps
to restrict or eliminate international audiotext traffic.
DOMESTIC SERVICE
At December 31, 1996, GT&T had 50,190 subscriber access lines in service.
This number of access lines represents approximately 7 lines per 100
inhabitants. Of all lines in service, 52% were in the area of Georgetown (the
nation's capital), and 85% were in the largest urban areas, consisting of
Georgetown, Linden, New Amsterdam, Diamond and Beterverwagting. Ninety percent
of Guyana's population lives on the coastal plain where Georgetown,
Beterverwagting, and New Amsterdam are located. Most rural areas do not have
telephone service.
GT&T's revenues from local telephone and other services, which are not
significant (accounting for approximately 2% of GT&T's total revenues in
1996), consist of installation charges for new lines, monthly line rental
charges, monthly measured service charges based on the number and duration of
calls and other charges for maintenance and other customer services. For each
category of revenues, rates differ for residential and commercial customers.
Residential and commercial customers have contributed approximately equally to
GT&T's revenues from local service. GT&T's current monthly charge per access
line is approximately $.25 for residential customers and approximately $.60
for business customers, and the average monthly bill for residential and
business service (excluding charges for international calls and cellular
service) is $1.99 and $2.61, respectively. See "Business and Properties of New
ATN--Regulation."
In December 1991, GT&T inaugurated a mobile cellular telephone system within
a thirty-mile radius of Georgetown. Prior to July 15, 1995, there was no
charge for local mobile cellular telephone service. Commencing July 15, 1995,
the PUC approved tariffs. See "Business and Properties of New ATN--
Regulation." Cellular subscribers are offered various calling plans and are
charged a monthly fee plus air time based on the selected plan. GT&T's current
average monthly charge per cellular subscriber is approximately $89 including
monthly rental and airtime charges. As of December 31, 1996, GT&T had
approximately 1,200 active mobile cellular subscribers.
In the second quarter of 1997 GT&T completed a test installation of a
Northern Telecom Proximity I fixed wireless network in a rural area about 60
kilometers west of Georgetown. If this system continues to perform well, GT&T
expects to provide wireless telephone service to about 2,000 subscribers in
the same area in the fall of 1997, and to use this system in lieu of wireline
network for much of GT&T's future expansion of its network. The normal rates
for land line telephones apply to GT&T's fixed cellular and fixed wireless
network services.
47
<PAGE>
EXPANSION PROGRAM
Pursuant to the purchase agreement between the government of Guyana and the
Company (the "GT&T Agreement") and GT&T's license from the government of
Guyana (the "License"), the Company and GT&T agreed to implement an expansion
plan (the "Expansion Plan"), which required substantially expanding and
improving the service provided by GT&T's predecessor. Pursuant to the
Expansion Plan, GT&T has significantly expanded and rebuilt its
telecommunications network. The number of access lines has increased from
approximately 13,000 working lines in January 1991 to 50,190 lines at December
31, 1996. Approximately 95% of GT&T's access lines are now digitally switched
lines. The Intelsat B earth station, which provides the principal link with
Guyana and the rest of the world, was upgraded and digitalized to increase the
number of circuits in operation from 75 in January 1991 to 1,026 currently.
GT&T has installed public telephones in over 150 locations across the
country providing telecommunications for both local and international calls to
areas that had not previously enjoyed service. Currently, in addition to the
public telephones, GT&T maintains three public "telephone centers" at which
the public can, upon payment of the charges in cash to GT&T personnel who
staff these centers, use an ordinary residential-type telephone to make
international and domestic calls.
GT&T has purchased capacity in two international fiber optic cables--the
Americas I cable, which runs from Brazil to Trinidad, the United States Virgin
Islands and the United States mainland, and the Columbus II cable, which runs
from the Caribbean region to the Azores and Spain. The Company is presently
participating in talks with other international carriers to expand the
capacity of Americas I cable and to build an Americas II cable that would
provide a leg to Guyana, Suriname and French Guyana.
The Company and GT&T were originally required to complete the Expansion Plan
by January 28, 1994. With the Government's consent, this date was extended
first to August 28, 1994 and then to February 28, 1995. The Company and GT&T
repeatedly advised the government that their inability to obtain adjusted
rates fully to compensate for the 1991 devaluation in Guyana's currency
severely hampered their ability to obtain financing needed to complete the
Expansion Plan. The Company and GT&T also repeatedly sought to negotiate
changes in the Expansion Plan in order to reflect current needs and
technology. Through December 31, 1996, GT&T had expended nearly $86 million on
the Expansion Plan and the Company had advanced an aggregate of approximately
$23 million to GT&T principally for the Expansion Plan.
A proceeding initiated by the government of Guyana with regard to the
noncompletion of the Expansion Plan by its scheduled completion date of
February 28, 1995, is pending before the PUC. See "--Regulation."
OTHER SERVICES
GT&T is also licensed to provide various telephone-related services that
extend beyond basic telephone service, including yellow pages and other
directory services, and it has an exclusive license to sell, lease or service
various kinds of telecommunications equipment. Under the License, GT&T's rates
for most of these services must be specified in a tariff approved by the PUC.
See "--Regulation."
SIGNIFICANT REVENUE SOURCES
Revenues from the following carriers of international traffic to Guyana
constituted the following percentages of GT&T's revenues in the past three
years:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
AT&T....................................................... 42% 37% 36%
MCI........................................................ 17% 21% 21%
British Telecom............................................ 13% 19% 12%
Teleglobe (Canada)......................................... 26% 13% 12%
</TABLE>
48
<PAGE>
A significant portion of GT&T's international long distance revenue
discussed above is generated by GT&T's audiotext providers which operate as
service bureaus or intermediaries for a number of audiotext information
providers. The following service bureaus accounted for more than 10% of GT&T's
total revenues in the years indicated below:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Beylen Telecommunications, Ltd............................. 40% 60% 57%
Islands Telephone Company Limited.......................... -- 10% 14%
</TABLE>
No other revenue source accounted for more than 10% of GT&T's total revenues
in 1994, 1995 or 1996.
POLITICAL RISK INSURANCE
At the time of its initial investment in GT&T, the Company obtained
political risk insurance with respect to its investment in GT&T (including its
guarantee of GT&T's obligations to Northern Telecom International Finance,
B.V. ("NTIF") from the Overseas Private Investment Corporation ("OPIC"), an
agency of the United States Government. While OPIC has not formally announced
that is has suspended writing political risk insurance or guarantees for U.S.
investments in Guyana, it is the Company's understanding that since the
beginning of 1993 OPIC has provided no new insurance or guarantees for
investments in that country because of its concern about developments between
the Guyana government and two U.S. companies which had been insured by OPIC.
The Company's difficulties in obtaining rate increases from the PUC was one of
OPIC's concerns. Separately, in December 31, 1996, OPIC terminated the
Company's political risk insurance because of OPIC's objections to GT&T's
provision of telecommunication services to international audiotext providers.
Following such termination, the Company obtained other political risk
insurance with respect to its investment in GT&T in the private insurance
market. Under the Company's current insurance policies, the Company is insured
against risks of currency inconvertibility, expropriation and political
violence. The Company's current insurance is limited to 60% of the book value
of the affected property up to a maximum insured amount of $35 million plus
100% in the first year and 85% thereafter of any amounts which the Company is
called upon to pay with respect to its guaranty of GT&T obligations to NTIF as
a result of an insured risk. The insurance policies cover only specified risks
and contain a number of limitations and exclusions. The aggregate insurance
coverage is significantly less than the fair market value of the Company's
investment in GT&T.
REGULATION
Prior to the Company's acquisition of its 80% interest in GT&T in January
1991, the government of Guyana had no experience in regulating a privately-
owned public utility. GT&T is subject to regulation in Guyana by virtue of the
provisions of the License and of the Guyana Public Utilities Commission Bill
1990 ("PUC Law") and the Guyana Telecommunications Bill 1990
("Telecommunications Law"). Certain provisions of the License, the PUC Law,
and the Telecommunications Law applicable to GT&T are summarized below.
License. The License, which was issued on December 19, 1990, grants GT&T an
exclusive franchise to provide in Guyana (i) for a period of 20 years
(renewable for 20 years at the option of GT&T), public telephone, radio
telephone (except private radio telephone systems which do not interconnect
with GT&T's network) and pay station telephone services and national and
international voice and data transmission, sale of advertising in any
directories of telephone subscribers and switched or non-switched private line
service; and (ii) for a period of 10 years (renewable for 10 years on a non-
exclusive basis at the option of GT&T) supply of terminal and customer
premises equipment and telefax, telex and telegraph service and telefax
network service (without prejudice to the right of any other person to
undertake any of the following operations: (a) sale of telefax or teleprinter
machines, (b) maintenance of telefax or teleprinter equipment, or (c)
operation of any facility for the sending or receiving of telefax copies or
teleprinter messages). In addition, GT&T was granted a non-exclusive license
to provide, for a period of 20 years (renewable for 20 years at the option of
GT&T), cellular radio telephone service provided that the license does not
prejudice the right of Guyana's Institute of Applied Sciences and Technology
to make provision for, or to provide, any telecommunications services in the
course of, or in connection with, the carrying out of its functions.
49
<PAGE>
The Telecommunications Law, the GT&T Agreement and the License include
various provisions under which the License may be terminated before its
scheduled expiration date. Under the applicable Guyana law and the GT&T
Agreement, Guyana's director of telecommunications may cause early termination
of the License in certain cases, including contravention of any of the
provisions of the Telecommunications Law or the conditions of the License, or
the failure of GT&T to implement the Expansion Plan in a timely fashion. See
"Business and Properties of New ATN--Expansion Program." If GT&T believes that
the License has been terminated unlawfully, it may appeal to the courts of
Guyana. Pursuant to the GT&T Agreement, upon non-renewal of the License, the
government will be entitled to purchase the Company's interest in GT&T or the
assets of GT&T on such terms as may be agreed upon by the Company and the
government or, upon failure to reach such agreement, as determined by
arbitration conducted by the International Centre for the Settlement of
Investment Disputes. The PUC has scheduled a hearing to commence in late
August 1997, in a proceeding initiated by the government of Guyana, with
regard to the noncompletion of the Expansion Plan by its scheduled completion
date of February 28, 1995. Under the PUC Law, GT&T will have the opportunity
to explain why the Expansion Plan is unfinished. If the PUC concludes that
GT&T failed or refused to complete the Expansion Plan in a timely manner
without legal justification, it may impose a fine, which could range from $71
(G $10,000) up to the cost of completing the Expansion Plan (which GT&T
estimates to be no more than $5 million). The PUC could also recommend to the
government that it cancel the License. The Guyana government is not bound to
act on a PUC recommendation. GT&T will have the right of appeal to the Guyana
High Court from any adverse ruling of the PUC.
PUC Law and Telecommunications Law. The PUC Law and the Telecommunications
Law provide the general framework for the regulation of telecommunications
services in Guyana. The PUC Law provides the basis for setting the rates of a
telecommunications licensee. Subject to the certain limitations, applicable to
the years 1991-1994, GT&T is entitled, pursuant to the GT&T Agreement and the
PUC Law, to a minimum return to GT&T of 15% per annum on its rate base.
Pursuant to an amendment to the PUC Law enacted in 1994, the PUC is required
to "act in a manner that is consistent with, and gives effect to, the
provisions of" the GT&T Agreement.
The PUC is an independent statutory body with the principal responsibility
for regulating telecommunications services in Guyana. The PUC has broad powers
to monitor GT&T's compliance with the License and to require GT&T to supply it
with such technical, administrative and financial information as it may
request.
Since GT&T commenced operations as a subsidiary of the Company in 1991, GT&T
has had difficulties in obtaining from the PUC the rate increases to which it
believed it was entitled. In February 1991 the official rate of exchange for
Guyanese currency was changed, allowing the currency to float. This resulted
in a devaluation of approximately 184 percent, and in April 1991, GT&T filed
for a rate increase of 184 percent to compensate for the devaluation. The PUC
in November 1991 granted GT&T, in principal, an increase in rates for
international calls which amounted to approximately 160 percent or less and,
in principal, authorized GT&T to impose a surcharge on these rates in order to
recover over a period of not less than 30 months, the approximately $3.5
million difference between the rates actually in effect from May 1991 through
December 31, 1991 and the revenue which GT&T would have received during this
period if the newly approved rates had been in effect.
Shortly after the issuance of its initial November 1991 order, the PUC
authorized the collection of the new rates (but not any surcharge) for calls
to the United Kingdom, Canada, the United States and Antigua. The PUC declined
to authorize any increase in rates to 165 other countries covered by GT&T's
application on the grounds that GT&T had not submitted original documentary
evidence to the PUC regarding the accounting rates then in effect with these
countries. GT&T's failure to submit such documentation arose because neither
it nor its predecessor, the government-owned telephone company, had such
documentation in their records.
In October 1992, elections were held in Guyana and a new party came to
power. Shortly thereafter, several changes occurred in the membership of the
PUC. After considerable negotiation with the new government and
50
<PAGE>
further applications to the PUC, in December 1993 the PUC authorized 70
percent of the surcharges requested by GT&T on calls to the United States,
United Kingdom, Canada and Antigua, and in January 1994 the PUC temporarily
authorized rate adjustments in respect of 83 of the remaining countries which
amounted to 70 percent or less of the rate increases approved in principal by
the PUC in its initial November 1991 order. Later in 1994, the PUC authorized
full surcharges as requested by GT&T for the United Kingdom, Canada, the
United States, and Antigua, and in 1995, the PUC finally authorized full rates
and surcharges for the 83 countries covered by its temporary order of January
1994 and rejected GT&T's application for any rate increases on the remaining
82 countries.
In May 1995, GT&T applied to the PUC for substantial increases in all of its
telephone rates to enable it to earn the minimum return of 15% per annum on
its rate base to which it is entitled under the terms of the GT&T Agreement,
and the PUC Law. On October 11, 1995 the PUC issued an order that rejected
GT&T's application for increased rates and temporarily reduced rates for
outbound international calls by 10%, and during off-peak hours by an
additional 50% of the reduced rate. GT&T filed a motion against the October
11, 1995 order to the Guyana High Court and in January 1997 obtained an order
voiding the PUC's order in respect of these rates. When the PUC thereafter
scheduled a hearing to consider fixing new temporary rates for GT&T and
inquiring into the propriety of GT&T's reinstating its pre-October 11, 1995
rates, the Guyana High Court granted a further stay of all PUC proceedings on
these subjects. GT&T is presently seeking to put into effect a surcharge on
long distance rates designed to recover over a period of 18 months the
approximately $10 million of revenues which were lost for the period from
October 1995 to January 1997 when GT&T was required by the PUC to reduce its
rates. The PUC has appealed the January 1997 decision of the Guyana High Court
to the Guyana Court of Appeals, and in May 1997, the Consumer Advisory Bureau
(a non-governmental group in Guyana) sought an injunction from the Guyana High
Court, restoring telephone rates to those imposed by the PUC in its October
1995 order. At the date of this Proxy Statement-Prospectus, the PUC's appeal
and the Consumer Advisory Bureau's application are still pending.
Since January 1991, the Company has had an agreement with GT&T, which was
approved at its inception by several officials of the Guyana government as
well as the government's representatives on GT&T's Board of Directors,
pursuant to which GT&T paid the Company an advisory fee equal to 6% of GT&T's
revenues for a variety of managerial and advisory services furnished by the
Company to GT&T. On January 2, 1997, the PUC ordered GT&T to cease paying
these advisory fees to the Company and to recover from the Company
approximately $25 million of fees paid under the agreement since January 1991.
GT&T has filed a motion against the PUC's order in the Guyana High Court and
has obtained an order staying the effectiveness of the PUC's order pending
determination of that motion.
At December 31, 1996, GT&T owed the Company approximately $23 million for
advances made from time to time for working capital and capital expenditure
needs of GT&T. The PUC law requires permission of the PUC for GT&T to issue
any debentures or any other evidence of indebtedness payable more than one
year from the date of issue. GT&T's indebtedness to the Company was evidenced
by a series of promissory notes, many of which through clerical error had a
maturity of more than one year from the date of issue. In March 1997, the PUC
rejected GT&T's contention of clerical error and voided all of the promissory
notes then outstanding, including a number which had less than one year
maturities but were issued in consolidation or renewal of earlier notes which
had a more than one year maturity. The PUC ordered that no payments be made on
any of the outstanding notes, and that GT&T recover from the Company all
amounts theretofore paid. The order also provided that the PUC would be
willing to authorize the payment for any amounts properly proven to the
satisfaction of the PUC to be due and payable from GT&T to the Company. GT&T
has appealed the PUC's order to the Guyana High Court and obtained a stay of
the PUC's order pending determination of that appeal.
In late April 1997, the PUC applied to the Guyana High Court for orders
prohibiting GT&T from paying any monies to the Company on account of
intercompany debt, advisory fees or otherwise pending the determination of
GT&T's appeals from the January 1997 and March 1997 PUC orders mentioned
above. At the date of this Proxy Statement-Prospectus, the PUC's application
is still pending.
51
<PAGE>
As a result of the decline in 1997 in GT&T's revenues and profits from
audiotext traffic, GT&T is preparing to file an application to the PUC for a
significant increase in local and outbound international rates. There can be
no assurance as to whether or when GT&T will receive any such rate increase.
FCC Matters. On August 7, 1997, the FCC issued a news release in which it
briefly described a Report and Order it had adopted in a rulemaking procedure
which it initiated in December 1996, in which it adopted mandatory
international accounting and settlement rate benchmarks for many countries,
including Guyana. The FCC classified countries as low-income, middle-income or
high-income based upon World Bank data. Guyana is classified as a low-income
country. The FCC adopted a mandatory settlement rate benchmark of $.23 per
minute for low-income countries and required that settlement rates between the
U.S. and low-income countries be reduced to $.23 per minute by January 1,
2002. The FCC stated in the release that it expects U.S. licensed carriers to
negotiate proportionate annual reductions.
Numerous foreign carriers and Government authorities opposed the FCC's
rulemaking proposal. In general, those parties believe that accounting and
settlement rates should continue to be established, as they are today, through
bilateral negotiations between carriers. Opponents of the FCC's proposal
believe that the proposal is contrary to binding treaty obligations of the
United States relating to duly-constituted multilateral organizations, and
that the FCC does not possess the necessary legal authority to adopt such
proposals. Opponents also believe that the FCC's proposals are legally and
factually deficient in other ways. The FCC stated in the release that it
encourages foreign governments and carriers to work with the United States
toward an effective international agreement that achieves lower settlement
rates, and that it may refrain from enforcing its Order if a satisfactory
multilateral solution can be reached that will produce substantially
equivalent results in a timely manner.
The current settlement rate for U.S.-Guyana traffic is $.85 per minute. AT&T
has previously sought the Company's agreement to a reduction in that
settlement rate. GT&T has taken the position that the settlement rate was
fixed through bilateral negotiations and sees no reason to change the rate at
this time. GT&T believes that the rate should remain the same until the
parties mutually agree to change it. The Company is unable to predict what
benchmarks the FCC may establish or what other actions the FCC or U.S.
carriers may take in an effort to secure lower settlement rates on the U.S.-
Guyana route.
Since inbound traffic from the United States to Guyana significantly exceeds
outbound traffic from Guyana to the United States, any significant reduction
in the settlement rate for U.S.-Guyana traffic could have a significant
adverse impact on GT&T's earnings. Any significant reduction in the settlement
rate also might make it difficult for GT&T to continue to attract audiotext
traffic from the United States on a profitable basis. Any of these events
would provide GT&T with a basis to seek a rate increase so as to permit GT&T
to earn its contractually provided 15% rate of return. However, there can be
no assurance as to when or whether GT&T would receive such a rate increase.
FTC Matters. The Federal Trade Commission ("FTC") has pending a proceeding
in which it has asked parties for comments and information as to whether the
FTC should expand the definition of "pay-per-call" services to include
audiotext services such as those which GT&T terminates in Guyana. The FTC has
received formal comments and conducted a workshop in connection with the
proceeding but has taken no action. If the FTC adopts an expanded definition
of "pay-per-call" services to include such audiotext services, such a
definition could have an adverse effect upon GT&T's ability to continue to
attract audiotext traffic from the United States under current dialing
patterns.
TAXATION--UNITED STATES
As a U.S. corporation, the Company is subject to U.S. federal income tax on
its worldwide net income, currently at rates up to 35%. GT&T will be
classified as a controlled foreign corporation ("CFC") for purposes of the
Subpart F provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). Under those provisions, the Company may be required to include in
income certain earnings and profits ("E&P") of a CFC subsidiary at the time
such E&P are earned by the subsidiary, or at certain other times, prior to
their being distributed to the Company. At present, no material amount of such
subsidiary E&P is includible in the U.S.
52
<PAGE>
taxable income of the Company before being distributed to it. Pursuant to the
foreign tax credit provisions of the Code, and subject to complex limitations
contained in those provisions, New ATN would be entitled to credit foreign
withholding taxes on dividends or interest received, and foreign corporate
income taxes of its subsidiaries paid with respect to income distributed as
dividends or deemed distributed under Subpart F from such subsidiaries,
against New ATN's U.S. federal income tax.
A U.S. corporation is classified as a Personal Holding Company ("PHC") if
(a) more than 50% of its capital stock is owned directly or indirectly by or
for five or fewer individuals (or pension plans); and (b) at least 60% of its
adjusted ordinary gross income consists of certain types of income
(principally passive income, including interest and dividends) included in the
Code definition of "PHC Income." For any taxable year that a corporation is a
PHC, the "undistributed personal holding company income" of such corporation
for that year (i.e., the net income of the corporation as reflected on its
U.S. corporate income tax return, with certain adjustments, minus, in general,
federal income tax and dividends distributed or deemed distributed for this
purpose) would be subject to an additional PHC tax of 39.6%. The Company
currently satisfies, and immediately upon the consummation of the Transaction
will continue to satisfy, the above ownership criterion but the Company
believes that it does not satisfy the income criterion for classification as a
PHC.
TAXATION--GUYANA
In 1991, GT&T's worldwide income was subject to Guyanese tax at an overall
rate of 45%. The tax rate was reduced to 35% effective for GT&T as of January
1, 1992 and was again increased to 45% effective for GT&T as of January 1,
1993. The GT&T Agreement provides that the repatriation of dividends to the
Company and the payment of interest on GT&T debt denominated in foreign
currency are not subject to withholding taxes. It also provides that fees
payable by GT&T to the Company or any of its subsidiaries for management
services they are engaged to render shall be payable in foreign currency and
that their repatriation to the United States shall not be subject to currency
restrictions.
In May 1997, GT&T received a letter from the Guyanese department of Inland
Revenue indicating that GT&T's tax returns for 1992 through 1996 had been
selected for an audit under the direct supervision of the Trade Minister with
particular focus on the withholding tax on payments to international audiotext
providers. In March and April 1997, the Guyanese Trade Minister publicly
announced that he had appointed a task force to probe whether GT&T should pay
withholding taxes on fees paid by GT&T to international audiotext providers.
The Minister announced that if GT&T were found guilty of tax evasion it could
owe as much as $40 million in back taxes. In July 1997, GT&T applied to the
Guyana High Court for an order prohibiting this audit on the grounds that the
decision of the Minister of Trade to set up this task force and to control and
direct its investigation was beyond his authority, violated the provisions of
the Guyanese Income Tax Act, interfered with the independence of the
Commissioner of Inland Revenue and was done in bad faith, and the court issued
an order effectively staying the audit pending a determination by the court of
the merits of GT&T's application.
In June 1997, GT&T received an assessment of approximately $3.9 million from
the Commissioner of Inland Revenue for taxes for the current year based on the
disallowance as a deduction for income tax purposes of five-sixths of the
advisory fees payable by GT&T to the Company. The deductibility of these
advisory fees in an earlier year had been upheld in a decision of the High
Court in August 1995. In July 1997, GT&T applied to the High Court for an
order prohibiting the Commissioner of Inland Revenue from further proceeding
with this assessment on the grounds that the assessment was arbitrary and
unreasonable and capriciously contrary to the August 1995 decision of the
Guyana High Court, and GT&T obtained an order of the High Court effectively
prohibiting any action on the assessment pending the determination by the
court of the merits of GT&T's application. There can be no assurance as to the
ultimate outcome of these pending tax issues.
EMPLOYEES
As of December 31, 1996, GT&T employed approximately 745 persons of whom
approximately 565 are represented by the Guyana Postal and Telecommunications
Workers Union. GT&T's current contract with this
53
<PAGE>
union expired on March 31, 1997, and GT&T is currently in negotiations with
the union on a new contract. The Company considers its employee relations to
be satisfactory. The Clerical & Commercial Workers Union, in February 1996,
sought recognition to represent supervisors, junior managers and senior
managers employed by GT&T. These levels of employees are not now unionized,
but the Clerical & Commercial Workers Union has claimed that more than 50% of
this level of staff are members of the Union. GT&T has responded that its
current policy does not provide for collective bargaining of its management
employees, and has requested evidence of the more that 50% membership.
PROPERTIES
At December 31, 1996, GT&T utilized approximately 254,000 square feet of
building space on approximately 41 acres of land in various locations
throughout Guyana, all of which is owned by GT&T. In addition, GT&T leases
approximately 3,000 square feet of office space in Georgetown, Guyana. For
additional information, see "Business and Properties of New ATN--Expansion
Program." GT&T carries insurance against damage to equipment and buildings,
but not to outside plant.
54
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF ECI
The following selected historical financial data have been derived from the
audited consolidated financial statements of ATN-VI (the predecessor company
to ECI) and its subsidiaries as of and for the years ended December 31, 1996,
1995, 1994, 1993 and 1992. The following selected historical financial data
for the three months ended March 31, 1997 and 1996 have been derived from the
unaudited consolidated interim financial statements of ATN-VI which, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation. The
selected historical consolidated financial data should be read in conjunction
with the audited consolidated financial statements and related notes thereto
of ATN-VI, as of December 31, 1996 and for each of the three years in the
period ended December 31, 1996 and ATN-VI's quarterly financial statements for
the three months ended March 31, 1997 which are included elsewhere in this
Proxy Statement-Prospectus. The consolidated financial data for the three
months ended March 31, 1997 are not necessarily indicative of the operating
results to be expected for the entire fiscal year. All dollar amounts are in
thousands, except per share data.
55
<PAGE>
SELECTED STATEMENT OF OPERATIONS DATA OF ECI
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Telephone operations:
Revenues:
Local exchange
service.............. $22,471 $21,779 $23,082 $21,335 $23,122 $ 5,699 $ 6,637
Access charges and
revenues............. 13,493 14,845 14,689 13,608 16,124 3,364 4,192
Universal Service
Fund................. 11,168 13,201 12,081 12,151 11,360 2,802 3,591
Billing and other
revenues............. 3,997 4,210 3,943 3,638 4,580 873 1,296
Directory advertising. 3,420 3,020 2,916 2,730 2,563 649 487
------- ------- ------- ------- ------- ------- -------
Total revenue.......... 54,549 57,055 56,711 53,462 57,749 13,387 16,203
Total expense.......... 35,367 38,462 38,690 38,001 40,912 9,282 10,458
------- ------- ------- ------- ------- ------- -------
Income from telephone
operations............. 19,182 18,593 18,021 15,461 16,837 4,105 5,745
Income from other
operations............. 1,443 1,550 1,942 2,639 2,684 850 319
Non-operating revenues
and expenses (other
than interest), net.... (644) (9,341) (2,279) (3,138) (2,588) (710) (708)
------- ------- ------- ------- ------- ------- -------
Income from continuing
operations before
interest expense,
income taxes and
minority interest...... 19,981 10,802 17,684 14,962 16,933 4,245 5,356
Interest expense, net... 10,053 10,054 9,520 8,862 9,082 2,233 2,074
------- ------- ------- ------- ------- ------- -------
Income from continuing
operations before
income taxes and
minority interest...... 9,928 748 8,164 6,100 7,851 2,012 3,282
Income taxes............ 3,659 352 3,054 1,631 2,215 593 855
------- ------- ------- ------- ------- ------- -------
Income from continuing
operations before
minority interest...... 6,269 396 5,110 4,469 5,636 1,419 2,427
Minority interest....... (14) (23) (47) (87) (81) (30) (7)
------- ------- ------- ------- ------- ------- -------
Income from continuing
operations............. $ 6,255 $ 373 $ 5,063 $ 4,382 $ 5,555 $ 1,389 $ 2,420
======= ======= ======= ======= ======= ======= =======
Dividends per share..... -- -- -- -- -- -- --
</TABLE>
SELECTED BALANCE SHEET DATA OF ECI
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
-------------------------------------------- ------------
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Fixed assets, net....... $145,010 $154,940 $146,706 $129,810 $149,574 $149,365
Total assets............ 193,966 191,083 191,141 203,853 210,327 213,593
Short-term debt
(including current
portion of long-term
debt).................. 6,807 7,909 7,184 8,665 18,498 18,149
Long-term debt, net..... 107,665 100,400 94,579 91,028 86,589 85,686
Stockholder's equity.... 27,058 26,751 32,233 35,500 41,883 44,303
</TABLE>
- --------
(1) Historical income per share amounts have not been presented as this
information is not considered meaningful.
56
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ECI
INTRODUCTION
ATN-VI is the predecessor company to ECI. ATN-VI's revenues and income from
continuing operations are derived principally from the operations of its
telephone subsidiary, Vitelco. Vitelco derives most of its revenues from local
telephone and long-distance access services. Other operations in ATN-VI's
Consolidated Statements of Operations include: Vitelcom Cellular, Inc. d/b/a
VitelCellular, which provides cellular telephone service in the U.S. Virgin
Islands; and Vitelcom, which supplies customer premises equipment in the U.S.
Virgin Islands.
The principal components of operating expenses for ATN-VI's telephone
operations are plant specific operations expenses, plant non-specific
operations expenses, customer operations expenses, corporate operations
expenses, and taxes other than income taxes. These categories are consistent
with FCC accounting practices. Plant specific operations expenses relate to
support and maintenance of telephone plant and equipment and include vehicle
expense, land and building expense, central office switching expense and cable
and wire expense. Plant non-specific operations expenses consist of
depreciation charges for telephone plant and equipment and expenses related to
telephone plant and network administration, engineering, power, materials and
supplies, provisioning and plant network testing. Customer operations expenses
relate to marketing, providing operator services for call completion and
directory assistance, and establishing and servicing customer accounts.
Corporate operations expenses include Vitelco's expenses for executive
management and administration, corporate planning, accounting and finance,
external relations, personnel, labor relations, data processing, legal
services, procurement and general insurance. Taxes other than income taxes
include gross receipts taxes, property taxes, and other miscellaneous taxes.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Revenues from telephone operations for the period ended March 31, 1997 were
$16.2 million as compared to $13.4 million for the corresponding period of the
prior year, an increase of $2.8 million, or 21%. This increase was principally
the result of restored line service to pre-Hurricane Marilyn levels. Hurricane
Marilyn struck the Virgin Islands on September 15, 1995, putting approximately
37,800 of Vitelco's approximately 60,000 access lines out of service.
Accordingly, local exchange service increased $938,000, or 17%, and access
charges increased $828,000, or 25%, as lines in service increased from 45,940
at March 31, 1996 to 60,397 at March 31, 1997. Universal Service Fund revenues
increased $789,000, or 28%, because of increased investment. Billing and other
revenues increased $423,000, or 49%, due principally to increased usage.
Telephone operating expenses for the period ended March 31, 1997 were $10.5
million, an increase of $1.2 million, or 13%, from telephone operating
expenses of $9.3 million for the corresponding period of 1996. The increase is
principally the result of a $1.3 million increase in plant non-specific
operations, as depreciation increased due to increased telephone plant in
service. As a percentage of revenues from telephone operations, telephone
operating expenses decreased to approximately 65% for period ended March 31,
1997 from approximately 69% for the corresponding period of 1996.
Income from telephone operations from the period ended March 31, 1997 was
$5.7 million, an increase of $1.6 million, or 40%, from income from telephone
operations of $4.1 million during the corresponding period of 1996. The
increase resulted from the $2.8 million increase in revenues from telephone
operations, partially offset by the $1.2 increase in telephone operating
expenses discussed above.
Income before income taxes and minority interest for the period ended March
31, 1997 was $3.3 million, an increase of $1.3 million, or 65%, from income
before income taxes and minority interest or $2.0 million during the
corresponding period of 1996. This increase was primarily the result of a $1.6
million increase in
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revenues from telephone operations discussed above and a $159,000 decrease in
net interest expense as a result of reduced debt levels during the 1997
period, partially offset by a $531,000 decrease in income from other
operations as a result of decreased cellular revenues.
ATN-VI's effective tax rate for the period ended March 31, 1997 was 26.1% as
compared to 29.5% for the corresponding 1996 period.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues from telephone operations for the year ended December 31, 1996 were
$57.7 million, an increase of $4.2 million, or 8%, from revenues from
telephone operations of $53.5 million for the year ended December 31, 1995.
The increase was primarily the result of increases of $1.8 million, or 8%, in
local exchange revenues and $2.5 million, or 18%, in access charge revenues at
Vitelco for the year ended December 31, 1996. The increase in these revenues
is a result of restored lines in service to pre-Hurricane Marilyn levels. At
December 31, 1996 Vitelco had 59,470 lines in service.
Telephone operating expenses for the year ended December 31, 1996 were $40.9
million, an increase of $2.9 million, or 8%, from telephone operating expenses
of $38.0 million for the year ended December 31, 1995. The increase was
primarily the result of increases in plant-specific expenses of $2.5 million,
or 27%, as a result of additional maintenance costs related to Hurricane
Marilyn and subsequent storms and an increase of $884,000, or 6%, in plant
non-specific expenses due to increased depreciation as a result of additional
telephone plant in service, partially offset by the capitalization of certain
expenses at Vitelco in the first quarter of 1996 as Vitelco's work force was
shifted from maintenance activities to repairing the damage caused by
Hurricane Marilyn. As a percentage of revenues from telephone operations,
telephone operating expenses were approximately 71% for the years ended
December 31, 1995 and 1996.
Income from telephone operations for the year ended December 31, 1996 was
$16.8 million, an increase of $1.4 million, or 9%, from income from telephone
operations of $15.5 million for the year ended December 31, 1995. The increase
resulted from the $4.2 million increase in telephone operating revenues,
partially offset by the $2.9 million increase in telephone operating expenses
as the restoration of lines in service after Hurricane Marilyn's impact
progressed to a pre-hurricane level.
Income before income taxes and minority interest for the year ended December
31, 1996 was $7.9 million, an increase of $1.8 million, or 29%, from $6.1
million for the year ended December 31, 1995. This increase was primarily the
result of the $1.4 million increase in income from telephone operations
discussed above and a $550,000 net decrease in non-operating expenses due to
lower corporate expenses, partially offset by a $220,000 increase in net
interest expenses as a result of a decrease in interest income due to reduced
cash on hand resulting from hurricane repair expenditures.
ATN-VI's effective tax rate for the year ended December 31, 1996 was 28.2%
as compared to 26.7% for the year ended December 31, 1995.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues from telephone operations for the year ended December 31, 1995 were
$53.5 million, a decrease of $3.2 million, or 6% from telephone operations of
$56.7 million for the prior year. The decrease was primarily the result of
Hurricane Marilyn which put approximately 37,800 of Vitelco's approximately
60,000 access lines out of service on September 15, 1995. At December 31,
1995, Vitelco had 40,761 lines in service. Principally as a result of the
impact of Hurricane Marilyn on Vitelco's lines in service in the fourth
quarter, Vitelco's local exchange revenues decreased by $1.7 million, or 8%,
and Vitelco's access charge revenues decreased by $1.1 million, or 7%, for the
year ended December 1995.
Telephone operating expenses for the year ended December 31, 1995 were $38.0
million, a decrease of $689,000, or 2%, from telephone operating expenses of
$38.7 million for the year ended December 31, 1994.
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This decrease was primarily the result of a shifting in the fourth quarter of
1995 of Vitelco's work force from maintenance activities to repairing the
damage caused by Hurricane Marilyn. As a percentage of revenues from telephone
operations, telephone operating expenses increased to approximately 71% for
the year ended December 31, 1995 from approximately 68% for the year ended
December 31, 1994.
Income from telephone operations from the year ended December 31, 1995 was
$15.5 million, a decrease of $2.6 million, or 14%, from income from telephone
operations of $18.0 million for the year ended December 31, 1994. The decrease
resulted primarily from the $3.2 million decrease in telephone operating
revenues, partially offset by the $689,000 decrease in telephone operating
expenses discussed above.
Income before income taxes and minority interest for the year ended December
31, 1995 was $6.1 million, a decrease of $2.1 million, or 25%, from income
before income taxes and minority interest of $8.2 million for the year ended
December 31, 1994. This decrease was primarily the result of the $2.6 million
decrease in income from telephone operations described above and an $859,000
increase in net non-operating expense due to increased corporate activity,
partially offset by a $697,000 increase in income from other operations due
primarily to increased cellular revenues in the aftermath of Hurricane Marilyn
and a $658,000 decrease in net interest expenses due to an increase in
interest income on cash reserves.
ATN-VI's effective tax rate for the year ended December 31, 1995 was 26.7%
as compared to 37.4% for the year ended December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
ECI will depend upon funds received from its subsidiaries to meet its
capital needs, including servicing approximately $5.5 million aggregate
principal amount of debt to be assumed from the Company and its financing of
any future acquisitions.
In connection with the Transaction, ATN-VI will borrow approximately $17.4
million, net, from the RTFC under the 15 year Credit Facility. This facility
will provide for quarterly amortization of principal and interest of
approximately $500,000 commencing on the first full billing cycle after
disbursement.
ATN-VI's loan agreements with the RTFC will limit the payment of dividends
by ATN-VI to ECI unless ATN-VI meets certain financial ratios. At March 31,
1997, ATN-VI would have been able to pay approximately $2.8 million of
dividends to ECI. At the Effective Date, ECI will hold a note of ATN-VI in the
estimated amount of approximately $6.0 million, which may be repaid by ATN-VI
in whole or in part without regard to the limit on the payment of dividends by
ATN-VI.
ATN-VI's ability to service its debt will be dependent on funds from its
parent or its subsidiaries, primarily Vitelco. The RUS loan and applicable RUS
regulations restricts Vitelco's ability to pay dividends based upon certain
net worth tests except for limited dividend payments authorized when specific
security instrument criteria are unable to be met. Settlement agreements made
in 1989 and 1991 with the U.S. Virgin Islands Public Service Commission (the
"PSC") also contain certain restrictions on dividends by Vitelco which, in
general, are more restrictive than those imposed by the RUS. Dividends by
Vitelco are generally limited to 60% of its net income, although additional
amounts are permitted to be paid for the sole purpose of servicing ATN-VI's
debt to the RTFC. Under the above restrictions, at March 31, 1997, Vitelco's
dividend paying capacity was approximately $1.0 million in excess of the
amounts permitted for servicing ATN-VI debt. After giving effect to the five
year rebate of 90% of Vitelco's Virgin Islands income tax and 100% of
Vitelco's gross receipts, excise and property taxes granted by the Virgin
Islands Development Commission in May 1997, at March 31, 1997, Vitelco's
dividend paying capacity would have been approximately $7.6 million in excess
of the amounts permitted for servicing ATN-VI debt.
The RTFC Loan and RUS Loan agreements also require, among other things,
maintenance of minimum debt service and times interest earned coverage and
restrictions on issuance of additional long-term debt. As of March 31, 1997,
ATN-VI was in compliance with all covenants contained in its long-term debt
agreements.
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At March 31, 1997, Vitelco had outstanding $5 million of borrowings under a
$5 million line of credit with the RTFC expiring in March 2000, and an
additional $6 million under a $15 million line of credit with the RTFC
expiring in October 1997. These borrowings were incurred to finance part of
the costs of repairing damage to Vitelco's telephone plant caused by Hurricane
Marilyn in September 1995. Vitelco has also received approval from the RUS for
$35.7 million of long-term financing, which may be used to repay Vitelco's
outstanding line of credit borrowings from the RTFC. Borrowings under
Vitelco's $5 million line of credit are required to be repaid within 12 months
of the date of the borrowing, but may be repaid from the proceeds of
borrowings under the $15 million line of credit. Borrowings under Vitelco's
$15 million line of credit will mature on October 31, 1997, at which date, if
long-term loan funds from RUS have not yet been made available to Vitelco,
Vitelco will have the option of rolling the outstanding amount borrowed under
that line of credit into a 15-year term loan from RTFC having terms
substantially similar to those contained in Vitelco's existing long-term loan
from RTFC.
The effect of inflation on ATN-VI's financial results of telephone
operations in the U.S. Virgin Islands has not been significant in recent
years. The effect of inflation on the cost of providing telephone service in
U.S. Virgin Islands has generally been offset (without any increase in local
subscribers' rates) by increased revenues resulting from growth in the number
of subscribers and from regulatory cost recovery practices in determining
access revenues.
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ECI
PRO FORMA FINANCIAL DATA
The following are unaudited pro forma consolidated condensed statements of
operations data and consolidated condensed balance sheet data for ECI. The pro
forma consolidated condensed balance sheet data as of March 31, 1997 give
effect to the Transaction, as if it occurred on March 31, 1997. The unaudited
pro forma consolidated condensed statement of operations data for the year
ended December 31, 1996 and the three months ended March 31, 1997 give effect
to the Transaction, as if it occurred at the beginning of the period
indicated. The pro forma adjustments are described in the accompanying notes
hereto. The pro forma consolidated condensed balance sheet and statements of
operations data should be read in conjunction with the consolidated financial
statements and notes thereto of ATN-VI (the predecessor company of ECI) as of
December 31, 1996 and for each of the three years in the period ended December
31, 1996 and ATN-VI's quarterly financial statements for the three months
ended March 31, 1997 which are included elsewhere in this Proxy Statement-
Prospectus. The pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if the Transaction had occurred at the
beginning of the periods indicated, nor is it necessarily indicative of future
operating results or financial position.
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ECI
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ATN-VI PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS RESULTS
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Cash........................................ $ 6,792 $ 7 (1) $ 6,584
17,400 (2)
(17,615)(3)
Accounts receivable......................... 14,720 178 (1) 15,103
205 (3)
Other current assets........................ 10,788 140 (1) 10,928
-------- -------- --------
Total current assets...................... 32,300 315 32,615
Net fixed assets............................ 149,365 7,359 (1) 157,292
568 (3)
Net property costs recoverable from future
revenues................................... 22,391 22,391
Other assets................................ 9,537 3 (1) 9,540
-------- -------- --------
$213,593 $ 8,245 $221,838
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities......................... $ 39,990 $ 929 (1) $ 46,419
5,500 (3)
Long-term debt.............................. 85,686 2,750 (1) 106,083
17,400 (2)
247 (3)
Due to Atlantic Tele-Network, Inc........... 22,758 (22,758)(3) --
Other liabilities and minority interest..... 20,856 340 (1) 21,196
Stockholders' equity:....................... 44,303 3,668 (1) 48,140
169 (3)
-------- -------- --------
$213,593 $ 8,245 $221,838
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
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ECI
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 THREE MONTHS ENDED MARCH 31, 1997
---------------------------------- -------------------------------------------
ATN-VI ATN-VI
HISTORICAL PRO FORMA PRO FORMA HISTORICAL PRO FORMA PRO FORMA
RESULTS ADJUSTMENTS RESULTS RESULTS ADJUSTMENTS RESULTS
---------- ----------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Telephone operations:
Net revenues.......... $57,749 $57,749 $ 16,203 $ 16,203
Net expenses.......... 40,912 40,912 10,458 10,458
------- ------ ------- ----------- --------- -----------
Income from telephone
operations............. 16,837 16,837 5,745 5,745
Income from other
operations............. 2,684 2,684 319 319
Non-operating revenues
and expenses (other
than interest), net.... (2,588) (349)(6) (2,937) (708) (87)(6) (795)
------- ------ ------- ----------- --------- -----------
Income from continuing
operations before
interest expense,
minority interest and
income taxes........... 16,933 (349) 16,584 5,356 (87) 5,269
Interest expense, net... 9,082 1,262 (4) 8,694 2,074 315 (4) 1,984
(1,650)(5) (405)(5)
------- ------ ------- ----------- --------- -----------
Income from continuing
operations before
income taxes and
minority interest...... 7,851 39 7,890 3,282 3 3,285
Income taxes............ 2,215 (472)(4) 2,258 855 (118)(4) 863
634 (5) 156 (5)
(119)(6) (30)(6)
------- ------ ------- ----------- --------- -----------
Income from continuing
operations before
minority interest...... 5,636 (4) 5,632 2,427 (5) 2,422
Minority interest....... (81) (81) (7) (7)
------- ------ ------- ----------- --------- -----------
Income from continuing
operations............. $ 5,555 $ (4) $ 5,551 $ 2,420 $ (5) $ 2,415
======= ====== ======= =========== ========= ===========
Income per share from
continuing operations.. $ 0.51 $ 0.22
======= ===========
Weighted average shares
outstanding............ 10,959 10,959
======= ===========
</TABLE>
The accompanying notes are an integral part of this statement.
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ECI
NOTES TO PRO FORMA FINANCIAL DATA
(1) To reflect the transfer to ECI of the capital stock of Atlantic Aircraft,
Inc. and indebtedness owed by Atlantic Aircraft Inc. to the Company.
(2) To reflect the $17.4 million net of long-term financing under the Credit
Facility.
(3) To reflect (a) the payment of intercompany debt owed by ATN-VI to the
Company of $17.4 million plus the final closing adjustment under the
Subscription Agreement based on assumed transaction costs of $1.5 million,
(b) the contribution to ECI of the remaining indebtedness of ATN-VI owing to
the Company, (c) the assumption of certain bank indebtedness by ECI and (d)
the transfer of miscellaneous assets to ECI.
(4) To record interest expense and related tax benefit on the new borrowing of
$17.4 million net under the Credit Facility.
(5) To reflect the reversal of (a) interest expense paid on intercompany debt
owed by ATN-VI to the Company, (b) record interest expense on certain bank
indebtedness to be assumed by ECI and (c) record their related income tax
impacts.
(6) To record additional compensation expense in accordance with ECI's
employment agreement with Jeffrey J. Prosser and the related income tax
benefit.
(7) The historical operating results of ECI include an allocation of certain
shared general and administrative costs from the Company. These shared costs
have historically been allocated to ATN-VI in approximately the same
proportion as operating revenues of ATN-VI bears to the Company's total
operating revenues. Management believes the allocation methods used are
reasonable. However, such costs are not necessarily indicative of the costs
that would have been incurred if the companies had been operated as
unaffiliated entities. It is not practical to estimate these costs on a
stand-alone basis.
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BUSINESS AND PROPERTIES OF ECI
ECI is a newly formed Delaware corporation, incorporated in 1997, which,
following the Effective Date, will own and operate the Company's business and
operations in the Virgin Islands. On and immediately after the Effective Date,
ECI's principal subsidiary will be Vitelco. Vitelco is the exclusive provider
of local telephone service in the U.S. Virgin Islands. Vitelco provides
subscribers with local telephone service in the U.S. Virgin Islands, access to
long-distance companies for interstate and international telephone service,
and provides those companies with access to its local network. ECI will also
be engaged, through its wholly owned subsidiary ATN-VI in selling and leasing
telecommunications equipment in the US Virgin Islands (a business now
conducted by Vitelcom) and, through its 90 percent owned subsidiary,
VitelCellular, in providing cellular telephone service in the U.S. Virgin
Islands to land-based and marine subscribers.
It is the intention of Mr. Prosser, as the controlling stockholder of ECI,
after the Effective Date to endeavor to expand ECI's operations through the
acquisition of other businesses. ECI cannot predict whether it will be
successful in pursuing such acquisition opportunities or what the consequences
of any such acquisition would be. The evaluation and negotiation of such
business acquisitions may involve significant expenditures by ECI. There can
be no assurance that ECI will be able to acquire or successfully integrate any
such businesses, and acquisitions that are consummated may involve the
incurrence of significant amounts of debt by ECI and/or the dilution of
existing stockholders' interests in ECI through the issuance of additional
shares of ECI capital stock. ECI is currently evaluating certain acquisitions;
however, no assurances can be given that any such acquisitions will be
consummated or that, if completed, they will be successful. Furthermore, there
can be no assurance that ECI's management will be able to manage effectively
any resulting business or that any acquisition will benefit ECI. Depending
upon the nature, size and timing of acquisitions, ECI may be required to raise
financing. There can be no assurance that the Credit Facility, or any other
loan agreements to which ECI or its subsidiaries may become a party will
permit such additional financing or that such additional financing will be
available to ECI on terms acceptable to management or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of ECI--Liquidity and Capital Resources."
LOCAL SERVICE
In 1995, based upon access line data provided by the United States Telephone
Association (the "USTA"), Vitelco was the 28th largest local telephone company
of more than 1,000 local telephone companies in the United States.
Approximately 40% of Vitelco's total revenue in 1996 was derived from the
provision of local service.
ECI believes that Vitelco's telephone business is essentially non-cyclical,
and (except for its growth in access lines) is not materially reduced in times
of recession. In 1996, Vitelco's growth rate in access lines was 2%. ECI
believes that future growth in access lines will occur primarily as a result
of construction of new residential and commercial properties in the U.S.
Virgin Islands. However, growth should also occur from an increase in the
number of households that have telephones, and an increase in lines per
subscriber is anticipated as facsimile machines, computer data communication
and other technological innovations become more widespread. All of these
factors affecting the rate of growth of access lines are likely to be
sensitive to changes in general economic conditions.
As of December 31, 1996, approximately 67% of Vitelco's 59,470 access lines
were residential lines, and the remainder were business lines. Vitelco's
current monthly charge per access line, which includes unlimited calls between
points in St. Croix, St. John and St. Thomas and is regulated by the U.S.
Virgin Islands Public Services Commission (the "PSC"), is $18.55 for
residential customers and $49.85 for business customers. In June 1987, when
the Company acquired Vitelco, Vitelco's residential rate was $21.90, and its
business rate was $58.45.
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ACCESS FOR LONG-DISTANCE SERVICES
In addition to providing local service, Vitelco provides subscribers with
access to long-distance companies for interstate and international services
and provides those companies with access to its local network and, thereby, to
local subscribers. Vitelco is compensated for providing this access by long-
distance carriers and by its subscribers in accordance with tariffs, which are
subject to review by the FCC. See "Business and Properties of ECI--
Regulation." The principal long-distance carrier in the U.S. Virgin Islands is
AT&T of the Virgin Islands, Inc., a local subsidiary of AT&T ("AT&T-VI").
Approximately 28% of Vitelco's total revenues in 1996 was derived from access
charges.
OTHER SERVICES
During 1996 Vitelco received approximately 12% of its revenues from
providing billing and collection services for long distance carriers and from
yellow-pages directory advertising. Vitelco's billing and collection contract
with AT&T-VI expired on May 31, 1997. Vitelco and AT&T are currently
negotiating the renewal of the contract for a three year period on
substantially the same terms and conditions as the expired contract. Most of
Vitelco's billing and other revenues were derived from billing and collection
services for AT&T-VI.
SIGNIFICANT REVENUE SOURCES
Revenues from AT&T, derived principally from interstate network access and
billing and collection services of Vitelco, comprised approximately 13%, 12%
and 13% of ATN-VI's consolidated total revenues in 1994, 1995 and 1996,
respectively. No other revenue source accounted for more than 10% of ATN-VI's
total revenues in 1994, 1995 or 1996.
PHYSICAL PLANT
Vitelco operates a modern, fully digital telecommunications network in the
U.S. Virgin Islands. Vitelco initiated a modernization program with the
installation of its first fiber-optic cable in 1981 and its first digital
switch in 1982. Upon the completion of the modernization program in 1987,
Vitelco's network became the first multi-switch, all digital telephone system
in the Caribbean. Modern digital systems, which are more cost effective and
permit higher quality transmissions than analog systems, permit speech, text
and computer data to be transmitted simultaneously and on the same network.
Vitelco's policy is to upgrade plant and equipment, as necessary or
appropriate, pursuant to an ongoing construction and development program. The
program allows Vitelco to increase revenues and reduce costs, while enhancing
service, by taking advantage of technological developments in the
telecommunications industry, such as digital switching and fiber optics.
On September 17, 1989, a substantial portion of Vitelco's outside plant was
destroyed by Hurricane Hugo, which was the first hurricane to inflict
substantial damage in the U.S. Virgin Islands since 1928. While Hurricane Hugo
did relatively little damage to Vitelco's switching equipment, it resulted in
a decrease in the number of access lines in service from 46,968 to fewer than
12,000. Within seven months following the hurricane, Vitelco substantially
completed the restoration of the damaged and destroyed plant. On St. Croix,
which suffered the most damage, Vitelco replaced a substantial portion of its
aerial cable, including all cables connecting its remote switches on St.
Croix, with approximately 125 miles of underground cables, which have greater
capacity than the lines in place prior to the hurricane. On St. Thomas, where
the hurricane damage was less substantial, Vitelco replaced all damaged
outside plant, and, in addition, upgraded its network by installing an
underground fiber-optic cable to connect its microwave facility with its main
switch. In addition to greater capacity, underground cable provides greater
reliability and reduces the destructive impact of the elements, including the
impact of hurricanes. The total cost to Vitelco for replacement of plant due
to Hurricane Hugo was approximately $60 million. The Company received
approximately $23.6 million in respect of insurance coverage for damages
resulting from Hurricane Hugo.
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On September 15, 1995, Hurricane Marilyn struck the U.S. Virgin Islands
again causing extensive damage to Vitelco's outside telephone plant. Hurricane
Marilyn put out of service approximately 37,800 lines. The damage was most
extensive in St. Thomas and St. John, where respectively 90% and 50% of the
access lines were damaged as compared with the loss of only 30% in St. Croix.
The total cost to Vitelco for replacement of plant due to Hurricane Marilyn
was approximately $41 million.
The Company had been unable to obtain insurance coverage for any of its
outside plant or for any damage caused by windstorm at commercially reasonable
rates. However, the Company recently obtained insurance coverage for windstorm
damage in the amount of $30 million per storm and $55 million in the
aggregate.
CELLULAR AND OTHER OPERATIONS
The Company is engaged in other telecommunications operations, including
providing cellular telephone service in the U.S. Virgin Islands and selling
and leasing telecommunications equipment in the U.S. Virgin Islands.
VitelCellular provides cellular telephone service to land-based and marine
customers in the U.S. Virgin Islands. In September 1989, following Hurricane
Hugo, VitelCellular was granted special temporary authority by the FCC to
construct and operate cellular systems in the two U.S. Virgin Islands Rural
Service Areas (as defined by the FCC) and, as such, was the second cellular
system to become operational in a Rural Service Area in the United States.
Since late 1990, VitelCellular has been providing service in such Rural
Service Areas pursuant to regular authority from the FCC.
Comsat Mobile Investments, Inc. ("CMI"), a subsidiary of Communications
Satellite Corporation ("Comsat"), owns 10% of the common stock of
VitelCellular which it purchased in October 1990 for $1.4 million. Pursuant to
the agreement by which CMI acquired its stock interest in VitelCellular, CMI
was entitled to representation on the board of directors of VitelCellular and
CMI's approval was required for annual budgets and certain other corporate
actions. The Company has advised CMI that, in the Company's opinion, CMI
materially breached that agreement and that the Company has terminated that
agreement by reason of CMI's breach. CMI has disputed the Company's assertion
of material breach, but neither CMI nor the Company have initiated any
proceedings to resolve the issue.
Vitelcom earns revenues from the sale, lease and servicing of customer
premises equipment, facsimile machines, radio paging devices and private
branch exchanges in the U.S. Virgin Islands. Vitelcom recently participated in
the FCC auction process for Personal Communication Services ("PCS") spectrum
in the U.S. Virgin Islands Basic Trading Area ("BTA") and was awarded and
purchased the 10 MHz "E" block of spectrum for the U.S. Virgin Islands. The
Company is currently evaluating the build-out of this service and has until
April 2002 to build out the system.
COMPETITION
General. On February 8, 1996, the Telecommunications Act of 1996 (the "1996
Act") became law in the U.S. This comprehensive telecommunications reform
legislation addresses a wide range of competitive and regulatory issues that
will affect the future development of local and long distance
telecommunications services, cable television and information services. The
new law removes many of the statutory and court-ordered barriers to
competition between segments of the telecommunications industry. The new law
requires the FCC and state commissions to set new guidelines for
interconnection, loosens restrictions barring local telephone companies from
entering the cable television market, and preserves universal service while
equalizing the responsibility for contribution among all carriers.
Under the new law, Vitelco is exempt from the obligations, among other
things, to furnish interconnection and access to unbundled network elements,
although a party may challenge that exemption through a bona fide request
which the PSC must resolve according to statutory criteria. Vitelco is
entitled to seek an exemption from
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the interconnection obligations, among other things, to provide local
transport and termination based upon Total Service Long Run Incremental Costs
("TSLRIC") or Total Element Long Run Incremental Costs ("TELRIC"), and the PSC
must resolve any such request according to statutory criteria.
The FCC adopted rules implementing the interconnection and local competition
provisions in the new law on August 8, 1996. State public utility commissions,
incumbent local exchange carriers and their industry associations, and one
industry association representing long distance and non-incumbent local
carriers appealed various aspects of the FCC's decisions, and those appeals
were consolidated into a single appeal before the U.S. Court of Appeals for
the Eighth Circuit. In October 1996 the Court stayed the FCC's interim and
permanent pricing rules, as well as the FCC's rules implementing the
provisions in the new law addressing the ability of carriers to take advantage
of agreements, or portions thereof, that local exchange carriers have
negotiated with other carriers. In June 1997, the Court issued a decision on
one of those appeals, holding that interconnection provisions of the 1996 Act
do not require incumbent local exchange carriers to furnish exchange access to
long distance carriers at TSLRIC/TELRIC-based rates.
In July 1997, the Eighth Circuit Court of Appeals released its decision
regarding remaining issues raised in the consolidated appeals of the FCC's
interconnection decisions. A non-exclusive list of decisions rendered by the
Court include that:
(i) The FCC exceeded its jurisdiction in establishing rules governing the
prices that incumbent local exchange carriers may charge competitors for
interconnection, unbundled network elements and local exchange resale under
Sections 251-252 of the 1996 Act. The Court ruled that the authority to
establish prices for local communications facilities and services is
reserved to the states and, thus, vacated the FCC's pricing rules (except
for certain rules that apply to Commercial Mobile Radio Service ("CMRS")
providers, including PCS licensees).
(ii) The FCC's "pick and choose" rule, which allows non-incumbent local
competitors to select individual terms of previously approved
interconnection agreements for their own use, conflicts with the purposes
of the 1996 Act, and also was vacated.
(iii) The FCC's rules placing the burden of proof on rural and small
incumbent local exchange carriers (such as Vitelco) in seeking to obtain or
maintain exemptions from the 1996 Act, and on the economic burden necessary
to justify an exemption, were vacated as exceeding the FCC's statutory
authority.
(iv) The FCC lacks authority to hear formal complaints which involve the
review and/or enforcement of local interconnection agreements approved by
state commissions.
(v) The FCC lacks authority to require interconnection agreements which
were negotiated before the enactment of the 1996 Act to be submitted for
state commission approval.
(vi) The FCC may not adopt a blanket requirement that state
interconnection rules must be consistent with the FCC's regulations.
(vii) The FCC correctly concluded that the operations support systems,
operator services and vertical switching features of incumbent local
exchange carriers qualify as network elements that are subject to the
unbundling requirements of the 1996 Act.
(viii) The FCC's definition of "technically feasible" was upheld for
purposes of deciding where incumbent local exchange carriers must permit
interconnection by competitors, but the FCC's use of this term to determine
what elements must be unbundled was rejected.
(ix) The FCC erroneously interpreted the 1996 Act in deciding that
incumbent local exchange carriers could be required by competitors to
provide interconnection and unbundled network elements at levels of quality
which exceed those levels at which incumbent local exchange carriers
provide such services to themselves.
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(x) The FCC cannot require incumbent local exchange carriers to recombine
network elements for competitors, but competitors may recombine such
network elements themselves as necessary to provide telecommunications
services.
(xi) The FCC's rules and policies regarding the duty of incumbent local
exchange carriers to provide for physical collocation of equipment were
upheld.
(xii) The FCC's rules requiring incumbent local exchange carriers to
allow the resale of promotional prices lasting more than 90 days were
upheld.
Vitelco expects that one or more parties may seek rehearing by the Eighth
Circuit or judicial review by the U.S. Supreme Court. Vitelco cannot predict
whether the Eighth Circuit decisions will stand in whole or in part, or what
actions the FCC or state authorities may or may not take in response to these
decisions.
The ongoing Court proceedings have not removed the need for negotiations and
arbitrations under the new law. The first negotiations under the new law were
initiated in February 1996, and state commissions began issuing arbitration
decisions in the fourth quarter, 1996. Vitelco has received one request for
interconnection under the law from a C-Block PCS licensee, and that licensee
filed an arbitration request with the PSC on February 27, 1997. Vitelco signed
an interconnection agreement with that licensee on June 7, 1997, and the PSC
subsequently approved the agreement.
In May 1997, the FCC issued a decision modifying its rules and policies
governing interstate exchange access services of incumbent local exchange
carriers. That decision applied, with limited exceptions, solely to incumbent
local exchange carriers who are governed by the FCC's price cap system of
regulation. As regards incumbent local exchange carriers who are subject to
federal rate-of-return regulation, the FCC stated that it plans to initiate a
separate access reform proceeding later this year. Vitelco is not in a
position to speculate on what reforms the FCC will propose in that proceeding
or what impact such reforms might have on the Company's business. Vitelco also
is not in a position to speculate on the outcome of the pending petitions for
reconsideration or the court appeals filed by various parties regarding the
FCC's May 1997 decision.
In May 1997, the FCC also issued a decision modifying its federal universal
service rules and policies pursuant to Section 254 and other provisions of the
new law. In that decision, the FCC adopted rules defining universal service,
establishing the eligibility criteria for carriers other than incumbent local
exchange carriers to receive universal service support, establishing the
criteria to determine which carriers must contribute to universal service
support and the manner in which such contributions will be determined and
administered, moving long term support from interstate exchange access charges
to universal service support, and establishing new universal service
mechanisms for schools, libraries and health care providers. At the present
time, no carrier other than Vitelco qualifies to receive federal universal
service support in the U.S. Virgin Islands.
With respect to federal high cost support, the FCC held that rural carriers
in high cost areas, such as Vitelco, should continue to receive universal
service support through existing mechanisms, with some modifications, based
upon such carriers' embedded costs. As stated in the FCC's May 1997 and
subsequent decisions, those modifications include, among other things, an
indexed cap on the growth of the high cost fund and limitations on the
corporate operations expenses that qualify for universal service support.
While such modifications may limit the federal universal service support
available to Vitelco now and in the future, Vitelco has no reason at this time
to believe that such modifications will have a significant adverse effect upon
Vitelco's overall operations. Additionally, until the FCC has ruled on pending
reconsiderations of these decisions, the final outcome remains uncertain.
The FCC endorsed the policy that universal service support for all high cost
carriers should be determined based upon forward-looking economic costs rather
than embedded costs. However, the FCC deferred adopting such a requirement for
rural carriers pending further FCC and other proceedings. The FCC stated that
it would commence a proceeding by October 1998 to establish forward-looking
economic cost mechanisms for rural carriers. The FCC stated that any such
requirement that it might adopt in the future would not apply to rural
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carriers such as Vitelco until at least January 1, 2001. Vitelco believes
that, while the use of forward-looking economic cost mechanisms to determine
universal service support could have an adverse impact upon Vitelco, it would
be premature for Vitelco to predict the potential impact of the FCC's new and
prospective universal service rules and policies.
With respect to carriers serving insular areas, the FCC deferred deciding
whether such carriers should be required to shift to universal service support
mechanisms based upon forward-looking economic costs at the same time as other
rural carriers. Various parties have filed petitions for reconsideration and
appeals of the FCC's decision adopting universal service rules and policies.
Vitelco is unable to predict the impact that these future decisions might have
upon its business interests.
Local Service. The local telephone segment of the United States
telecommunications industry consists of the seven Bell regional holding
companies spun off by AT&T in 1984 and more than 1,000 "independent" local
phone companies, including Vitelco. The firms in this segment are frequently
holding companies, which own both regulated telephone subsidiaries and
nonregulated subsidiaries. Pursuant to its franchise from the government of
the U.S. Virgin Islands, Vitelco is currently the sole provider of wireline
local telephone service in the U.S. Virgin Islands. However, the 1996 Act may
override some or all of the provisions of Vitelco's franchise which insure
that it will be the sole provider of wireline telephone service.
Access Services. Like many providers of network access services, Vitelco
faces potential competition from new entrants that construct some or all of
their own facilities to reach customers currently served by Vitelco. The
economic incentive for this form of competition is largely dependent on the
price levels and structures of a local telephone company's access services,
and is strongest where the customers are larger business or institutional
users that require high volumes of telecommunications services. Because there
are not a substantial number of such customers in the U.S. Virgin Islands, and
because Vitelco obtains the majority of its revenues from smaller businesses
and residential households, Vitelco does not believe that this form of
competition poses a material threat to Vitelco's access revenues. In one
instance, however, AT&T completed the installation of an underwater fiber
optic cable connecting St. Croix to St. Thomas, where the connection between
the two islands had heretofore been solely by Vitelco's microwave facilities.
The terms and conditions of the cable license do not prohibit the licensee or
other carriers from routing telephone calls over the cable. Thus, some traffic
between these islands may be provided on facilities other than Vitelco's, and
may reduce access charges that otherwise would be paid to Vitelco. Finally,
the FCC issued an order in May 1997 that directed that incumbent local
exchange carriers could not impose access charges on long distance and other
carriers that purchased unbundled network elements from the incumbent. This
decision could serve to reduce access revenues for Vitelco and other
incumbents. Several parties have appealed this and other aspects of the FCC's
May 1997 order, but Vitelco is unable to determine the outcome of such appeals
at this time.
Wireless Services. Pursuant to FCC rules, one competing cellular telephone
service has been authorized for St. Thomas and St. John, and another has been
authorized for St. Croix. During 1994, both competing cellular licenses were
sold to one company which competes for the same market. Vitelco will also face
competition from resellers of cellular service, including one which is
currently operating with respect to the offshore cruise ship and boating
markets. Vitelco's ability to compete in the offshore cruise ship and boating
markets will depend on several factors, including the price and quality of
services offered. Vitelco also expects to face competition both on land and in
the offshore cruise ship and boating markets from other mobile communications
technologies. Among these mobile technologies are broadband PCS, 800 MHz
Special Mobile Radio ("SMR") and 900 MHz SMR, which have sufficient bandwidth
to provide mobile and fixed two-way interactive voice service that is
comparable to cellular two-way voice service.
The FCC has redesignated many mobile communications carriers as CMRS
providers. CMRS providers include cellular, broadband PCS, narrowband PCS, 800
MHz and 900 MHz SMR, paging and other carriers. It is generally understood
that, within the mobile communications marketplace, CMRS providers compete
against each other offering similar and dissimilar mobile communications
services. The FCC has completed geographic license auctions for narrow band
PCS, broadband PCS, and 900 MHz SMR spectrum and has awarded multiple
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licenses for geographic areas that include the Virgin Islands. Vitelcom was
awarded and purchased the 10 MHz "E" block of spectrum for the U.S. Virgin
Islands. Future licensing of CMRS spectrum through the FCC's auction process
is anticipated. Today, and in the future, broadband PCS, SMR and other CMRS
carriers are expected to enter the Virgin Islands market and compete directly
with cellular and wireline telecommunications services. Other CMRS carriers,
such as narrowband PCS and paging will compete directly and indirectly with
services offered by the cellular network. CMRS licenses are generally granted
with a ten-year license period with renewal provisions similar to cellular
licenses.
REGULATION
The Company's long-distance access services and its radio-based services in
the U.S. Virgin Islands are regulated by the FCC; Vitelco's local telephone
service in the U.S. Virgin Islands is regulated by the PSC. The 1996 Act may
significantly change many aspects of the regulation of Vitelco's business.
Franchise. Vitelco provides basic local telephone service in the U.S. Virgin
Islands pursuant to a franchise granted by the government of the Virgin
Islands on October 9, 1959. The franchise is for an indefinite term unless and
until terminated by the government of the U.S. Virgin Islands upon two years'
prior written notice. In the event of such a termination, the franchise
provides that the U.S. Virgin Islands government shall expropriate the entire
business, plant and facilities of Vitelco. Vitelco has no reason to believe
that the government of the U.S. Virgin Islands intends to exercise its right
of termination in the foreseeable future. Vitelco derives local telephone
service revenues from fixed monthly local service charges to subscribers at
rates regulated by the PSC.
The FCC. The FCC has jurisdiction over the rates for access services
provided by local exchange carriers to long-distance carriers, as well as
other matters relating to these services and has established a system of
access charges to compensate local exchange carriers for the costs of
originating and terminating long-distance services, including a fair return on
investment. The FCC established the National Exchange Carrier Association,
Inc. ("NECA") to prepare and file access charge tariffs for both traffic
sensitive and non-traffic sensitive rate elements on behalf of all telephone
companies that do not file separate tariffs or concur in a joint access tariff
of another telephone company for all access elements and to administer the
Universal Service Fund ("USF"), a pool funded by long-distance carriers, which
is intended to assist local exchange carriers with higher than average non-
traffic sensitive costs. Vitelco files its own access tariff with the FCC,
which specifies Vitelco's charges to long-distance carriers for traffic
sensitive access elements and references the NECA tariff for non-traffic
sensitive access elements. Vitelco participates in and receives reimbursement
from the non-traffic sensitive access charge revenue pool administered by
NECA.
The non-traffic sensitive portion of Vitelco's costs allocated to long-
distance service is recovered through (i) flat-rate per line monthly access
charges to subscribers and (ii) allocations to Vitelco from NECA's non-traffic
sensitive pool of receipts from long-distance carriers. The revenues derived
from the USF are considered to be local revenues for ratemaking purposes,
rather than long-distance revenues, thereby reducing the rates payable by
local subscribers.
Cellular licenses and other public land mobile licenses are issued by the
FCC for a term of ten years. Near the conclusion of the term, licensees must
file applications for renewal to obtain authority to operate for an additional
ten-year term. These applications may be denied for cause and other parties
may file competing applications for the authorization. On March 11, 1993, the
FCC adopted an order regarding the standards to be applied in cellular license
renewal proceedings, which may involve a hearing if qualified competitors for
the authorization file applications.
The PSC. Vitelco's local telephone operations, including the services
offered and the rates for those services, are subject to the jurisdiction of
the PSC, which has jurisdiction over public utilities and transportation in
the U.S. Virgin Islands pursuant to Title 30 of the U.S. Virgin Islands Code.
Under Title 30 of the U.S. Virgin Islands Code and the rules and regulations
promulgated thereunder, Vitelco is allowed to charge local service rates that
will permit it to earn a reasonable return on investment and to recover its
operating expenses. The rate
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of return is the amount of money earned by a utility in excess of operating
costs, stated as a percentage of the utility's rate base, which is the value
of the utility's property devoted to the provision of telephone service minus
accumulated depreciation. The rate of return must be adequate to permit the
utility to maintain its credit and to attract new capital. Vitelco may file
new rates thirty days prior to the time the rates are intended to be
effective. The new rates will become effective unless the PSC suspends them
and initiates an investigation into their reasonableness. If the PSC
determines that the proposed rates are unreasonable, the PSC may order that
rates for the future be reduced. The PSC also may initiate an investigation of
existing rates if it believes that these rates are unreasonable. In May 1997,
Vitelco received a five year rebate of 90% of its Virgin Islands income taxes
and 100% of its Virgin Islands gross receipts, excise and property taxes from
the Virgin Islands Industrial Development Commission to assist Vitelco in
recovering these Hurricane-related costs without a rate increase. There can be
no assurance that the PSC will not, as a result of this tax rebate, seek to
reduce rates. See "--Taxation--Virgin Islands".
Between 1987, when the Company acquired Vitelco, and 1992 the Company and
certain of its subsidiaries were involved in numerous legal and administrative
proceedings with the PSC and entered into several settlement agreements with
the PSC. These agreements resulted in rate reductions in 1989 (retroactive to
1988) and September 1, 1992. The latest agreement between Vitelco and the PSC
with respect to rates provided that Vitelco's local rates would remain
unchanged until January 1, 1995 at the earliest and that, if Vitelco earned
more than an 11.5% return on its local rate base during the years 1993 to
1994, it would reduce its local rate base (and telephone plant on which
depreciation is computed) in the following years by an amount equal to 50% of
such excess earnings. These agreements also (i) require the prior approval of
the PSC for any direct or indirect transfer of 51% or more of Vitelco's common
stock, (ii) contain certain restrictions on intercompany transactions between
Vitelco and its affiliated companies and on advisory fees, (iii) prohibit
loans to or payments on behalf of affiliated companies by Vitelco, (iv) where
allocation of expense between Vitelco and an affiliate is necessary, require
the affiliate to repay Vitelco within 60 days with interest at 1% above the
prime rate, (v) require Vitelco to maintain an equity ratio of 25%, (vi)
except for payments to service ATN-VI's debt obligations to the RTFC, prevent
Vitelco from paying dividends in excess of 60% of net income so long as its
equity ratio is below 40%, (vii) except for payments to service ATN-VI's debt
obligations to RTFC, prohibit from paying any dividends if its equity ratio
falls below 25% and (viii) require that the chief executive officer of Vitelco
not be an employee, executive or member of the board of directors of any
affiliate of Vitelco or have any ownership interest in excess of 5% in any
affiliate of Vitelco and that such chief executive officer be allowed the
normal range of discretion for a chief executive officer of a public utility.
Although the latest agreement between Vitelco and the PSC essentially expired
on January 1, 1995, Vitelco has been operating since that date at the rates
established in that Agreement.
The PSC does not currently regulate cellular telephone service or rates;
however, in April 1993, the PSC reopened a proceeding, originally initiated in
1990, to consider whether and to what extent to regulate cellular rates and
services and whether to direct Vitelco to tariff interconnection rates. On
August 10, 1993, Congress enacted an amendment to the Communications Act of
1934 that preempts state regulation of cellular rates and entry. Although
states may petition the FCC to continue or initiate rate regulation, the FCC
has stated that a petitioning state will have to clear substantial hurdles to
be allowed to regulate rates for cellular service.
TAXATION--UNITED STATES
As a U.S. corporation, ECI will be subject to U.S. federal income tax on its
worldwide net income, currently at rates up to 35%. ECI's Virgin Islands
subsidiaries will be classified as controlled foreign corporations ("CFCs")
for purposes of the Subpart F provisions of the Internal Revenue Code of 1986,
as amended (the "Code"). Under those provisions, ECI may be required to
include in income certain earnings and profits ("E&P") of a CFC subsidiary at
the time such E&P are earned by the subsidiary, or at certain other times,
prior to their being distributed to ECI. At present, no material amount of
such subsidiary E&P is includible in the U.S. taxable income of the Company
before being distributed to it. Pursuant to the foreign tax credit provisions
of the Code, and subject to complex limitations contained in those provisions,
ECI would be entitled to credit foreign withholding taxes on dividends or
interest received, and foreign corporate income taxes of its subsidiaries paid
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with respect to income distributed as dividends or deemed distributed under
Subpart F from such subsidiaries, against ECI's U.S. federal income tax. The
10% Virgin Islands withholding tax applicable to dividends from the Virgin
Islands is likely to constitute an additional cost of distributing any such
dividends, because, after credit for allocable Virgin Islands corporate tax,
ECI may not benefit from the potential credit for the withholding tax.
A U.S. corporation is classified as a Personal Holding Company ("PHC") if
(a) more than 50% of its capital stock is owned directly or indirectly by or
for five or fewer individuals (or pension plans); and (b) at least 60% of its
adjusted ordinary gross income consists of certain types of income
(principally passive income, including interest and dividends) included in the
Code definition of "PHC Income." For any taxable year that a corporation is a
PHC, the "undistributed personal holding company income" of such corporation
for that year (i.e., net income as reflected on the corporation's U.S.
corporate income tax return, with certain adjustments, minus, in general,
federal income tax and dividends distributed or deemed distributed for this
purpose) would be subject to an additional PHC tax of 39.6%. Immediately after
consummation of the Transactions, ECI will satisfy the above ownership
criterion but ECI believes that it will not satisfy the income criterion for
classification as a PHC.
TAXATION--U.S. VIRGIN ISLANDS
Although the U.S. Virgin Islands is a taxing jurisdiction separate from the
United States, the U.S. Internal Revenue Code of 1986, as amended, is the
controlling taxing statute in the U.S. Virgin Islands, with the words "Virgin
Islands" substituted for the words "United States" where appropriate. A
corporation organized under the laws of the U.S. Virgin Islands is generally
taxed at a 35% marginal rate on its worldwide income, subject to reduction by
foreign tax credits, if available, plus a surcharge equal to 10% of the basic
tax (i.e., an additional 3.5%). A corporation which is not organized under the
laws of the U.S. Virgin Islands is generally subject to corporate income tax
at a 35% rate, plus an additional 3.5% surcharge, on income effectively
connected with a trade or business in the U.S. Virgin Islands, and to a 30%
branch profits tax on effectively connected earnings and profits which are not
reinvested in its U.S. Virgin Islands trade or business. Corporations not
organized in the U.S. Virgin Islands are generally subject to a 10% U.S.
Virgin Islands withholding tax on interest or dividends received from sources
within the U.S. Virgin Islands (other than any dividends received from a
corporation not organized under the laws of the U.S. Virgin Islands). Further,
Section 1274(b) of the Tax Reform Act of 1986 authorized the U.S. Virgin
Islands to enact non-discriminatory local income taxes. Corporations and other
taxpayers are also generally subject to property, gross receipts, excise and
stamp taxes in the U.S. Virgin Islands. Under the U.S. Virgin Islands
Industrial Development Commission (the "IDC"), the U.S. Virgin Islands may
offer tax benefits to qualifying businesses for the purpose of promoting the
growth, development and diversification of the U.S. Virgin Islands economy.
ATN-VI, Vitelco, Vitelcom and VitelCellular (the "ATN-VI Group") file a
consolidated income tax return in the U.S. Virgin Islands. Pursuant to the IDC
and subject to the satisfaction of certain conditions by Vitelco, Vitelco was
granted the following tax benefits through September 30, 1996: (i) a rebate of
11.25% of Vitelco's U.S. Virgin Islands income tax, income tax surcharge and
customs duties and other taxes on raw materials which are attributable to the
operations of Vitelco; and (ii) an exemption from 12.5% of Vitelco's U.S.
Virgin Islands real property, gross receipts and excise taxes. The amount of
these benefits in 1996 was $329,000. In May 1997 Vitelco was granted a rebate
of 90% of Virgin Islands income taxes and 100% of Virgin Islands gross
receipts, excise and property taxes for the five year period beginning October
1, 1998. On June 19, 1997 the Virgin Islands' Senate unanimously passed a
resolution calling on the PSC to reduce Vitelco's rates by 20%. To date, the
PSC has taken no action on this matter.
Dividends from ATN-VI to ECI and interest payments from any member of the
ATN-VI Group of companies to ECI or any affiliates not organized in the U.S.
Virgin Islands may be subject to a 10% U.S. Virgin Islands withholding tax.
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EMPLOYEES
At December 31, 1996, Vitelco employed approximately 409 individuals.
Approximately 274 of Vitelco's employees are represented by the United Steel
Workers of America (the "Steel Workers"). Vitelco's contract with the Steel
Workers expires on September 30, 1999.
PROPERTIES
At December 31, 1996, Vitelco, VitelCellular and Vitelcom utilized
approximately 132,000 square feet of building space on approximately 16 acres
of land in various locations throughout the U.S. Virgin Islands. Of this
space, approximately 116,000 square feet of building space on approximately 12
acres was owned (subject to a first priority security interest securing
certain indebtedness to the RTFC and the Rural Utilities Service, an agency of
the U.S. government) and 16,000 square feet on approximately 4 acres was
leased. Vitelco carries insurance in an aggregate amount of $50 million
against damage to any of its property and business interruption insurance for
damage to any of its properties other than telephone poles, cables and lines.
Vitelco's network system principally utilizes the ITT System 1210 Digital
Switch (the "1210 Switch") interconnected by fiber optic cable (on an intra-
island basis) and digital microwave radio (on an inter-island basis). In
addition, in January 1989, Vitelco purchased a DMS-100 switch (the "DMS-100
Switch") from Northern Telecom (CALA) Corporation and installed the switch in
July 1989 in its main office in St. Thomas. The DMS-100 Switch has increased
Vitelco's capacity to serve access lines.
VitelCellular's system in the U.S. Virgin Islands consists of two full power
cell sites and one low power enhancer on St. Thomas, a full power cell site
and a high power enhancer on St. John, and two full power cell sites on St.
Croix, which cover most of the land area of the islands and the surrounding
waters. Despite the small land area of the islands, the mountainous terrain
requires multiple radio sites for adequate coverage. The mobile telephone
switching office that controls all of the radio sites is located on St.
Thomas. All of VitelCellular's switching equipment is manufactured by Northern
Telecom, Inc.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
OF THE COMPANY COMMON STOCK
PRINCIPAL STOCKHOLDERS
As of August 11, 1997, the Company knows of no person who may be deemed to
own beneficially more than 5% of the Company Common Stock except as set forth
below:
<TABLE>
<CAPTION>
ACTUAL PRO FORMA(1)
------------------------- -----------------------
AMOUNT AND
NATURE OF AMOUNT OF
NAME AND ADDRESS BENEFICIAL PERCENT OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP COMMON STOCK OWNERSHIP COMMON STOCK
- ------------------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Cornelius B. Prior, Jr....... 3,693,400(2) 30.1% 2,807,040 57.2%
P.O. Box 6100
48A Kronprindsens Gade
Charlotte Amalie
St. Thomas
U.S. Virgin Islands 00801
Jeffrey J. Prosser........... 3,325,000(3) 27.1% -- --
Chase Financial Center
P.O. Box 1730
St. Croix
U.S. Virgin Islands 00821
Fidelity Management & Re-
sources Corp................ 1,056,700(4) 8.6% 422,680 8.6%
82 Devonshire Street
Boston, MA 02109
Chancellor L.G.T. Asset Man-
agement, Inc................ 633,000(4) 5.1% 253,200 5.1%
50 California, 27th Floor
San Francisco, CA 94111
</TABLE>
- --------
(1) After giving effect to the Transaction.
(2) Includes 300 shares owned by Mr. Prior's children, as to which Mr. Prior
disclaims beneficial ownership. Also includes 500 shares owned by Gertrude
Prior, Mr. Prior's wife, as to which Mr. Prior disclaims beneficial
ownership. Also includes 348,564 shares held by the 1994 Prior Charitable
Remainder Trust as to which Mr. Prior is the sole Trustee.
(3) Includes 56,750 shares owned by Mr. Prosser's children, as to which Mr.
Prosser disclaims beneficial ownership, and 257,000 shares as to which Mr.
Prosser holds an option to purchase.
(4) Based on available public filings and conversations with Fidelity
Management & Resources Corp. and Chancellor L.G.T. Asset Management, Inc.
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SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
Set forth below is the ownership, as of August 11, 1997, of the number of
shares and percentage of the Company Common Stock beneficially owned by (i)
each director of the Company, (ii) the President and Co-Chief Executive
Officer and each of the six other most highly compensated executive officers
of the Company, and (iii) all executive officers and directors of the Company.
<TABLE>
<CAPTION>
SHARES OF
THE PERCENT OF
COMPANY THE COMPANY
COMMON COMMON
STOCK STOCK
DIRECTORS OWNED OUTSTANDING
--------- --------- -----------
<S> <C> <C>
Andrew F. Lane.................................. -- --
Robert A.R. Maclennan........................... -- --
Cornelius B. Prior, Jr.......................... 3,693,400(1) 30%
Jeffrey J. Prosser.............................. 3,325,000(2) 27%
Sir Shridath S. Ramphal......................... -- --
John P. Raynor.................................. -- --
<CAPTION>
EXECUTIVE OFFICERS
------------------
<S> <C> <C>
James J. Heying................................. 11,057(3) *
Craig A. Knock.................................. 1,000 *
Sharon Smalls................................... 453(3) *
David L. Sharp.................................. 2,454(3) *
Thomas Minnich.................................. -- --
All executive officers and directors as a group
(11)........................................... 7,033,814 57%
</TABLE>
- --------
* Less than 1%
(1) Includes 300 shares owned by Mr. Prior's children, as to which Mr. Prior
disclaims beneficial ownership. Also includes 500 shares owned by Gertrude
Prior, Mr. Prior's wife, as to which Mr. Prior disclaims beneficial
ownership. Also includes 348,564 shares held by the 1994 Prior Charitable
Remainder Trust as to which Mr. Prior is the sole Trustee.
(2) Includes 56,750 shares owned by Mr. Prosser's children, as to which Mr.
Prosser disclaims beneficial ownership, and 257,000 shares as to which Mr.
Prosser holds an option to purchase.
(3) All of the shares owned by Ms. Smalls, 937 of the shares owned by Mr.
Heying and 554 of the shares owned by Mr. Sharp are allocated to them as
participants in the Company's Employees' Stock Ownership Plan.
76
<PAGE>
DIRECTORS AND MANAGEMENT OF NEW ATN
DIRECTORS OF NEW ATN
Following the Transaction, the Board of Directors of New ATN (the "New ATN
Board") is expected to consist of five individuals. Of the current members of
the Company Board, it is intended that Andrew F. Lane, Robert A.R. Maclennan
and Cornelius B. Prior, Jr., will serve as directors of New ATN, and Jeffrey
J. Prosser, John P. Raynor and Sir Shridath S. Rampal will resign from the
Company Board. The remaining members of the New ATN Board will be James B.
Ellis and Henry Wheatley.
CORNELIUS B. PRIOR, JR., 63, has been Co-Chief Executive Officer and
President of the Company since June 1987, when the Company, through ATN-VI,
acquired Vitelco. He was Chairman of the Board of Vitelco from June 1987 to
March 1997 and became Chairman of the Board of GT&T in April 1997. From 1980
until June 1987, Mr. Prior was a managing director and stockholder of Kidder,
Peabody & Co. Incorporated, where he directed the Telecommunications Finance
Group.
ANDREW F. LANE, 62, has been a director of the Company since February 1,
1992. Mr. Lane has practiced law in Boston, Massachusetts for more than the
past five years and was a partner in the law firm of Warner and Stackpole from
1991 to May 1996.
ROBERT A.R. MACLENNAN, 60, has been a director of the Company since February
1, 1992. He has been a member of the British Parliament since 1966. Mr.
Maclennan is the president of the Liberal Democrat party and the party's
spokesman in the House of Commons on the National Heritage, Art, Broadcasting
and the Constitution. From 1981 through 1989, he was European counsel to the
New York law firm, Proskauer, Rose, Goetz & Mendelsohn.
JAMES B. ELLIS, 57, has been President and Treasurer of MLB Resources Inc.,
an investment, real estate and construction firm, since 1987. Prior to 1992,
Mr. Ellis was an executive of SBC Communications Inc. (formerly known as
Southwestern Bell), a telecommunications firm based in the United States. From
1960 until 1992, Mr. Ellis worked in the telecommunications business,
primarily at Southwestern Bell, where he was President of SBC Communications-
Oklahoma Division from 1990 to 1992.
HENRY WHEATLEY, 65, has been a director of Vitelco since 1994. Since 1973 he
has been the President of Wheatley Realty Corporation, where he manages the
development of shopping centers. Mr. Wheatley is also Chairman of the Board of
Coral World (Virgin Islands), Inc., and has been vice president and trustee of
Islands Resources Foundation since 1972.
EXECUTIVE OFFICERS OF NEW ATN
Following the Transaction, Cornelius B. Prior, Jr., Co-Chief Executive
Officer and President of the Company is expected to be Chairman of the Board
and Chief Executive Officer of New ATN. Craig Knock is expected to be
Treasurer and the Chief Financial Officer.
For information concerning Mr. Prior, see "Directors of New ATN"
Craig Knock has been Chief Financial Officer and Vice-President of the
Company since April 1993. From July 1992 until April 1993, he was an Assistant
Controller of the Company. From 1987 to 1992, Mr. Knock was a C.P.A. and Audit
Manager at Deloitte & Touche LLP, an international accounting firm. Mr. Knock
obtained a B.B.A. degree in accounting from the University of Iowa in 1986.
EXECUTIVE OFFICERS OF GT&T
The following employees of GT&T are expected to make significant
contributions to New ATN's business.
77
<PAGE>
THOMAS R. MINNICH, General Manager of GT&T--Mr. Minnich will continue to
serve as the General Manager of GT&T until the Effective Date, after which
time he is expected to serve as the Chief Operating Officer of ECI.
RAYMOND ROOPNAUTH, Director, Technical Operations Mr. Roopnauth has been
Director of Technical Operations at GT&T since 1991. His responsibilities
include overseeing switching, national and international transmission, power
systems, external plant and operator services. Mr. Roopnauth has formerly held
the position of Senior Engineer for network development and international
systems at Guyana Telephone Co. He has more than 24 years experience in the
field of telecommunications engineering.
TERRENCE HOLDER, Deputy General Manager of Public Relations--Mr. Holder has
been Deputy General Manager of GT&T since 1991. His responsibilities entail
public relations communications, advertising, public notifications, press
releases and all other communications on behalf of GT&T. Mr. Holder has
formerly held positions as President--Caribbean Broadcasting Union, Chairman
of the Board of the Guyana Broadcasting Corporation, Ministry of Infomation--
Guyana. He has more than 15 years of experience in broadcasting and public
relations with the Guyana Broadcasting Corporation, where he achieved the
position of General Manager.
SONITA JAGAN, Controller--Ms. Jagan joined GT&T in March 1993 as Assistant
Controller and was promoted to Controller in May 1994. Her responsibilities
include reporting financial position and results of operations, internal
management reporting, and providing internal accounting control mechanisms
over purchasing, warehousing, receipts and disbursements, among other duties.
Prior to her employment with GT&T, Ms. Jagan resided in Canada, where she was
employed at GN Navtel (Canada) Inc., as Controller. Ms. Jagan has a Bachelors
of Business Administration majoring in Finance and Economics from University
of Western Ontario.
GODFREY S. STATIA, Treasurer--Mr. Statia has been with GT&T from June 1993,
joining as Manager--Revenue and Taxation. He was promoted to the position of
Treasurer in May 1994. As Treasurer, Mr. Statia is responsible for cash flow
forecasting, revenue accounting, regulatory matters, tax compliance and
planning, and financing and debt service. Mr. Statia works closely with the
Controller in carrying out their various responsibilities. Before joining
GT&T, he was the Senior Deputy Commissioner of Inland Revenue for the Inland
Revenue Department for Guyana, where he had acquired nearly 22 years of
working experience. Mr. Statia holds an MBA in Accounting and Finance from
Rutgers University, a CPA Certificate, and is a member of the American
Institute of Certified Public Accountants and the Illinois Society of
Certified Public Accountants.
78
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF ECI COMMON STOCK
Following the Transaction, the number of shares and percentage of ECI Common
Stock beneficially owned by (i) each director of ECI, (ii) each executive
officer of ECI and (iii) persons who may be deemed to own beneficially more
than 5% of ECI Common Stock will be as follows:
<TABLE>
<CAPTION>
NAMES AND ADDRESS OF 5% SHARES
STOCKHOLDERS, DIRECTORS BENEFICIALLY PERCENT OF
AND EXECUTIVE OFFICERS OWNED COMMON STOCK
----------------------- ------------ ------------
<S> <C> <C>
DIRECTORS:
Jeffrey J. Prosser........................... 5,704,231(1) 52%
Richard N. Goodwin........................... -- --
Salvatore Muoio.............................. 4,600 *
John P. Raynor............................... -- --
Sir Shridath S. Ramphal...................... -- --
John G. Vondras.............................. -- --
EXECUTIVE OFFICERS:
Jeffrey J. Prosser .......................... 5,704,231(1) 52%
Chairman, Chief Executive Officer, Secretary
and acting Chief Financial Officer
Thomas R. Minnich............................ -- --
Chief Operating Officer
Edwin Crouch................................. 8,014(2) *
Vice President U.S. Investor Relations
James J. Heying.............................. 11,057(3) *
Executive Vice President for Acquisitions
All Directors and Executive
Officers as a Group (8 persons)............. 5,715,738 52%
5% BENEFICIAL OWNERS:
Fidelity Management & Resources Corp.
82 Devenshire Street
Boston, MA 02109............................ 1,056,700 9.6%
Chancellor L.G.T. Asset
Management, Inc.
50 California, 27th Floor
San Francisco, CA 94111..................... 633,000 5.8%
</TABLE>
- --------
* Less than 1% ownership.
(1) Includes 97,358 shares owned by Mr. Prosser's children, as to which Mr.
Prosser disclaims ownership, and assumes that Mr. Prosser exercises the
option he currently holds to purchase 257,000 shares of ATN Common Stock.
(2) Includes 288 shares owned by Mr. Crouch that are allocated to him as a
participant in the Company's Employee Stock Ownership Plan, 1,726 shares
owned by Mr. Crouch pursuant to his IRA, and 6,000 shares owned by the
Edwin C. Crouch Revocable Trust.
(3) Includes 937 shares owned by Mr. Heying that are allocated to him as a
participant in the Company's Employee Stock Ownership Plan.
(4) Based on available public filings and conversations with Fidelity
Management & Resources Corp. and Chancellor L.G.T. Asset Management, Inc.
79
<PAGE>
DIRECTORS AND MANAGEMENT OF ECI
EXECUTIVE OFFICERS AND DIRECTORS OF ECI
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Jeffrey J. Prosser.......... 40 Chairman of the Board, Chief Executive Officer,
Secretary and Acting Chief Financial Officer
Thomas R. Minnich........... 60 Chief Operating Officer
Edwin Crouch................ 49 Vice President--U.S. Investor Relations
James J. Heying............. 43 Executive Vice President for Acquisitions
Richard N. Goodwin.......... 63 Director
Salvatore Muoio............. 38 Director
Sir Shridath Ramphal........ 69 Director
John P. Raynor.............. 46 Director
John G. Vondras............. 56 Director
</TABLE>
DIRECTORS OF ECI
Following the Transaction, the Board of Directors of ECI (the "ECI Board")
is expected to consist of six individuals. Of the current members of the
Company Board, it is intended that Jeffrey J. Prosser, John P. Raynor and Sir
Shridath S. Rampal will resign from the Company Board upon consummation of the
Transaction and will be directors of ECI. The remaining directors of ECI are
intended to be Salvatore Muoio, John G. Vondras and Richard N. Goodwin.
JEFFREY J. PROSSER, 40, has been Chairman of the Board, Co-Chief Executive
Officer and Secretary of the Company since June 1987. He was the Chairman of
the Board of GT&T from January 1991 to April 1997 and was President of Vitelco
from June 1987 through February 1992. He became Chairman of the Board of
Vitelco in April 1997. From 1980 until 1987, Mr. Prosser was a managing
shareholder of Prosser & Prosser, P.C. ("Prosser & Prosser"), an accounting
firm.
RICHARD N. GOODWIN, 63, is an author, columnist and a member of the
Massachusetts Bar, who has also spent much of his life in public service. Mr.
Goodwin serves as a consultant to the Government of the U.S. Virgin Islands
and to several private corporations and has done so since 1985. Mr. Goodwin is
an occasional columnist for the Los Angeles Times, and is the author of
"Triumph or Tragedy: Reflections on Vietnam," "The Sowers Seed--a Tribute to
Adlai Stevenson," "Promises to Keep--A Call for a New American Revolution,"
and "Remembering America," and the to-be-published "The Hinge of the World."
In the 1960s, he served as Special Consultant to House Subcommittee on
Legislative Oversight, where he conducted investigation of rigged television
quiz show, Assistant Special Counsel to President John F. Kennedy, Deputy
Assistant Secretary of State for Inter-American Affairs, and Special Assistant
to President Lyndon Johnson. Mr. Goodwin also served as a law clerk to Mr.
Justice Felix Frankfurter, U.S. Supreme Court in 1959.
SALVATORE MUOIO, 38, is a principal and general partner of S. Muoio and Co.
LLC. He was a securities analyst for Lazard Freres & Co. LLC from 1995 to 1996
in the telecommunications and media sectors, and for Gabelli & Co., Inc. from
1985 to 1995, serving as a generalist and in the communications sector. From
1993 to 1995, Mr. Muoio was portfolio manager for Gabelli Global
Telecommunications Fund, Inc. and from 1990 to 1995 also served as Director of
Research for GAMCO Investors. He has been a director of Lynch Corporation
since November 1995.
JOHN P. RAYNOR, 46, has been a director of the Company since June 1987. From
March 1, 1982 to March 31, 1987, Mr. Raynor was a partner of Schumacher &
Gilroy, a law firm located in Omaha, Nebraska. Since April 1, 1987, Mr. Raynor
has been a partner of Raynor, Rensch & Pfeiffer (or its predecessors), a law
firm located in Omaha, Nebraska.
80
<PAGE>
SIR SHRIDATH S. RAMPHAL, 69, has been a director of the Company since
February 1, 1992. An international consultant, he has been chancellor of the
University of Warwick (United Kingdom) and chancellor of the University of the
West Indies since 1989. He is also currently co-chairman of the international
commission on Global Governance and chairman of the Leadership for
Environmental and Developmental (LEAD) Programs. He was president of the
International Union for the Conservation of Nature from December 1990 to
January 1994, chairman of the West Indian Commission from July 1990 to
February 1993, and chancellor of the University of Guyana from 1988 to 1992.
He was secretary-general of the British Commonwealth from 1975 to 1990. A
native of Guyana, Sir Shridath served as Guyana's attorney general and
minister of Foreign Affairs from 1965 to 1975.
JOHN G. VONDRAS, 50, is President Director of PT ARIAWEST International, the
joint venture company operating the West Java KSO partnership with PT TELKOM.
Prior to October, 1995, Mr. Vondras was Executive Director--Finance (Auditing)
and Executive Director--International Network Strategies (May 1992 to November
1993) for U.S. West Inc. He has over 25 years experience in the
telecommunications industry in both line and staff functions.
ECI BOARD COMMITTEES
On or before the Effective Date, the ECI Board will establish an Audit
Committee and a Compensation Committee. The members and functions of these
committees are as follows:
The Audit Committee, a majority of which will be independent directors, has
the authority, among other things, to appoint the auditors of ECI and to
approve their audit fee, to review all financial statements and report to the
ECI Board and to review and assess ECI's internal audit program and the
adequacy of ECI's accounting, financial and operating policies and controls.
The members of the Audit Committee will be John P. Raynor and John G. Vondras.
The Compensation Committee, a majority of which will be independent
directors, has the authority, among other things, to review recommendations
from the Chief Executive Officer regarding (i) general compensation and
contractual policies to be applied to the Directors and Executive Officers and
(ii) options and incentive schemes, and to submit recommendations to the Board
of Directors on those areas as well as to determine the compensation and
employment conditions for the Chief Executive Officer and Chairman and to
approve the service contracts of Directors. The members of the Compensation
Committee will be Salvatore Muoio, Sir Shridath S. Ramphal and John P. Raynor.
OFFICERS OF ECI
For information regarding Mr. Prosser, see "--Directors of ECI".
Thomas R. Minnich has been employed by the Company since August 1995 and was
named General Manager--GT&T in March 1996. From September 1994 until August
1995, he was Senior Vice President-- Telecommunications & Government Affairs
for ICS Communications. From 1985 to 1994, Mr. Minnich was President and CEO
of Mantanuska Telephone Association, one of Alaska's primary telephone
companies. Previously, Mr. Minnich worked in various capacities for GTE for
over 30 years.
James J. Heying has been Chief Operating Officer and Vice President of the
Company since April 1993. Previously, from January 1990 until April 1993, Mr.
Heying was Chief Financial Officer and Treasurer of both the Company and
Vitelco. From 1981 until 1983, Mr. Heying was a staff accountant and a tax
consultant at Touche Ross & Co. (a predecessor of Deloitte & Touche LLP, an
international accounting firm), and, from 1983, until 1989, was employed by
Prosser & Prosser, P.C. as a manager and Certified Public Accountant. Mr.
Heying also served as a financial advisor to the Company and Vitelco from 1987
until 1989. Mr. Heying obtained a B.B.A. degree in accounting and an M.A.
degree in accounting from the University of Iowa in 1979 and 1981,
respectively.
Edwin Crouch has been Vice President, Investor Relations--Corporate
Communications of the Company since 1990.
81
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS OF ECI
The following Summary Compensation Table sets forth the individual
compensation information for the Chairman of the Board and Chief Executive
Officer the other two executive officers of ECI who were paid compensation by
the Company in excess of $100,000 for all services rendered in all capacities
to the Company and its subsidiaries for each of the prior three years.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(A) BONUS COMPENSATION(B)
- --------------------------- ---- --------- ----- ---------------
<S> <C> <C> <C> <C>
Jeffrey J. Prosser...................... 1996 250,667 --
Chairman of the Board, Chief Executive
Officer, Secretary and Acting Chief Fi- 1995 250,667 --
nancial Officer 1994 250,665 --
Thomas R. Minnich....................... 1996 195,825 --
Chief Operating Officer 1995 46,321(c) --
1994 --
James J. Heying......................... 1996 188,673 4,750
Executive Vice President for Acquisi- 1995 237,142 4,620
tions 1994 155,672 4,607
David L. Sharp.......................... 1996 173,067 4,750
President of Vitelco 1995 173,066 4,620
1994 181,521 4,607
Edwin Crouch............................ 1996 166,305 4,750
Vice President--US Investor Relations 1995 93,640 2,465
1994 75,670 2,250
</TABLE>
- --------
(a) Includes salary deferrals under the Company's 401(k) profit sharing plan
(the "401(k) Plan").
(b) Consists of Company matching contributions under the 401(k) Plan.
(c) Reflects salary of Mr. Minnich from July 1995, when Mr. Minnich joined the
Company, through December 31, 1995.
EMPLOYMENT AGREEMENT
ECI's employment agreement (the "Employment Agreement") with Mr. Prosser
will be for an initial five year term and will be renewable for successive
five year terms thereafter. The Employment Agreement will provide for a base
salary of $600,000 for the first year, subject to annual review and adjustment
in the subsequent years. In addition to the base salary, an annual bonus may
be awarded at the discretion of the ECI Board or any duly authorized committee
thereof. The Employment Agreement also provides for a grant of options to
purchase 2.5% of the total outstanding shares of ECI Common Stock pursuant to
ECI's 1996 Long Term Incentive and Share Award Plan. In the event Mr.
Prosser's employment is terminated for other than cause or disability by ECI
or for good reason by Mr. Prosser, Mr. Prosser will be entitled to receive a
lump sum severance payment equal to 500% of the sum of his base salary for the
year including the date of termination and his highest annual bonus earned
during the five years immediately preceding the date of termination.
The Employment Agreement also provides that, so long as Mr. Prosser
beneficially owns at least 3% of the outstanding shares of Common Stock of
ECI, ECI will, at its own expense and subject only to Mr. Prosser's bearing
his own pro rata share of all underwriting commissions and discounts incurred
in connection with any offering of registrable stock (as defined in the
Employment Agreement), (1) prepare and file with the SEC registration
statements and other documents as may be necessary to permit a public offering
and sale of Mr. Prosser's registrable stock and (2) include in any
registration statement of ECI (other than a registration statement
82
<PAGE>
on Form S-4 or S-8 or filed in connection with an exchange offer or an
offering of securities solely to the existing shareholders or employees of
ECI) such number of Mr. Prosser's registrable stock as he may elect to
include. In the event that Mr. Prosser's registrable stock is included in a
registration statement, ECI will indemnify Mr. Prosser against certain claims
or liabilities under the Securities Act.
STOCK OPTION PLANS
Prior to the Transaction, ECI will adopt the ECI 1997 Long Term Incentive
And Share Award Plan (the "Plan"). The purpose of the plan is to provide a
means to attract, retain and motivate employees and directors of ECI upon
whose judgment, initiative and efforts the continued success, growth and
development of ECI depends.
The plan will be administered by the Compensation Committee of the ECI Board
or such other committee designated by the ECI Board; consisting of two or more
non-employee directors (the "Committee"). Any employee of ECI or its affiliate
who is responsible for or contributes to the management, growth or
profitability of ECI or its affiliate will be eligible to participate in the
Plan. Subject to the terms of the Plan, the Compensation Committee will select
the participants and determine the terms and conditions of the awards,
including the type of award granted, the number of shares granted and the type
of consideration to be paid to ECI upon exercise of the awards. The total
number of shares reserved for awards under the Plan is [ ]. In the event of
a stock split, reverse stock split, reorganization, merger or similar capital
adjustment, the Committee may adjust the total number of shares covered under
the Plan, the number of shares covered by each award and the exercise price,
grant price or purchase price to prevent dilution or enlargement of the rights
under the Plan. In the event of a change of control of ECI, all outstanding
awards shall become fully exercisable subject to conditions in the Plan. For a
period of 60 days following a change of control, participants in the Plan may
also elect to surrender any outstanding awards and receive cash payments based
on either the change of control price of any shares or the fair market value
of any property other than shares relating to such award.
The Committee is authorized to grant awards which may consist of incentive
stock options ("ISOs"), nonqualified stock options ("NQSOs") and stock
appreciation rights ("SARs") as well as other types of awards. At the
discretion of the Committee, awards granted under the Plan may be granted
alone or in addition to, in tandem with, or in exchange or substitution for,
any other award granted under the Plan or under any other plan or agreement of
ECI The Committee shall have the authority to determine the exercise price,
the time or times at which an option may be exercised in whole or in part, the
methods by which such exercise price may be paid and the form of such payment.
The Committee may impose on any award or exercise thereof, additional terms
and conditions not inconsistent with the provisions of the Plan.
The Board generally has the power to amend, alter, suspend, discontinue or
terminate the Plan or the Committee's authority to grant awards under the Plan
without the approval of the ECI's shareholders; provided that the Board shall
not amend the Plan to materially and adversely affect rights therefore granted
to a participant without the consent of such participant.
CERTAIN TRANSACTIONS
The law firm of Raynor, Rensch & Pfeiffer has from time to time performed
legal services for the Company, for which it has received its customary fees.
Following the Transaction, such legal services likely will be performed for
ECI. John P. Raynor, who will be a director of ECI following the Transaction,
is a partner in this firm. In 1996, Raynor, Rensch & Pfeiffer was paid
$533,000 for such legal services.
The Company has from time to time consulted with Global Partners regarding
possible acquisitions. Following the Transaction, ECI may from time to time
consult with Global Partners. Sir Shridath S. Ramphal, a director of the
Company, is a partner of Global Partners.
83
<PAGE>
In 1997, S. Muoio & Co. LLC was paid $50,000 by the Company for investment
banking services. Salvatore Muoio, who will be a director of ECI following the
Transaction,is a principal and general partner of S. Muoio & Co. LLC.
PRICE RANGE AND DIVIDEND HISTORY
OF THE COMPANY COMMON STOCK
The Company Common Stock is traded on the AMEX (symbol "ANK").
The high and low prices of the Company Common Stock for each quarter during
1995, 1996, the first two quarters of 1997, and through August 6, 1997, for
the third quarter of 1997 were as follows (in U.S. dollars):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
<S> <C> <C> <C> <C>
1995
Market prices
High..................................... 9 3/4 8 5/8 12 5/8 12 1/4
Low...................................... 6 1/4 6 8 1/4 10
1996
Market prices
High..................................... 23 1/4 27 1/2 25 3/4 22
Low...................................... 10 5/8 20 1/2 18 14 5/8
1997
Market prices
High..................................... 17 1/2 13 13/16 13 1/4
Low...................................... 11 10 1/4 11 1/8
</TABLE>
The Company has not paid cash dividends in the past and does not intend to
pay cash dividends in the foreseeable future.
DESCRIPTION OF NEW ATN CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
New ATN's authorized capital stock will consist of 20,000,000 shares of
Common Stock, par value $.01 per share, of which 4,909,000 shares will be
outstanding immediately after the consummation of the Transaction, and
10,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred
Stock"), none of which will be outstanding immediately after the consummation
of the Transaction.
NEW ATN COMMON STOCK
All of the outstanding shares of the New ATN's Common Stock after the
consummation of the Transaction will be fully paid and nonassessable. Each
outstanding share is entitled to one vote on all matters submitted to a vote
of stockholders. There are no cumulative voting rights, meaning that the
holders of a majority of the shares voting for the election of directors can
elect all the directors if they choose to do so. Subject to the preferential
rights of any outstanding series of Preferred Stock, the holders of Common
Stock will be entitled to such dividends as may be declared from time to time
by the Board of Directors from funds legally available therefor, and will be
entitled to receive pro rata all assets of the New ATN upon the liquidation,
dissolution or winding up of the New ATN. Holders of Common Stock will have no
redemption, conversion or preemptive rights to purchase or subscribe for
securities of the New ATN.
NEW ATN PREFERRED STOCK
The New ATN Board of Directors will be authorized to divide the Preferred
Stock into series and, with respect to each series, to determine the dividend
rights, dividend rate, conversion rights, voting rights, redemption rights and
terms, liquidation preferences, sinking fund provisions, the number of shares
constituting the series
84
<PAGE>
and the designation of such series. The New ATN Board of Directors could,
without stockholder approval, issue Preferred Stock with voting rights and
other rights that could adversely affect the voting power of holders of Common
Stock and could be used to prevent a hostile takeover of New ATN. New ATN has
no present plans to issue any shares of Preferred Stock.
DESCRIPTION OF ECI CAPITAL STOCK
The following discussion reflects an amendment and statement of ECI's
Certificate of Incorporation and By-laws which will be adopted prior to the
Effective Date.
AUTHORIZED CAPITAL STOCK
Under ECI's Restated Certificate of Incorporation (the "Certificate"), ECI's
authorized capital stock will consist of 40,000,000 shares of ECI Common Stock
and 10,000,000 shares of Preferred Stock, par value $.01 per share ("ECI
Preferred Stock").
ECI COMMON STOCK
The holders of ECI Common Stock will be entitled to one vote for each share
on all matters on which stockholders generally are entitled to vote, and
except as otherwise required by law or provided in any resolution adopted by
the ECI Board with respect to any series of ECI Preferred Stock, the holders
of ECI Common Stock will possess 100% of the voting power. The Certificate
does not provide for cumulative voting.
Subject to the preferential rights of any outstanding ECI Preferred Stock
that may be created by the ECI Board under the Certificate, the holders of ECI
Common Stock will be entitled to such dividends as may be declared from time
to time by the ECI Board and paid from funds legally available therefor, and
the holders of ECI Common Stock will be entitled to receive pro rata all
assets of the Company available for distribution upon liquidation. All shares
of ECI Common Stock issued in connection with the Transaction will be fully
paid and nonassessable, and the holders thereof will not have any preemptive
rights.
There is no established public trading market for ECI Common Stock, although
a "when issued" market is expected to develop prior to the Effective Date. On
, 1997, the American Stock Exchange approved the listing of such shares
upon notice of issuance.
The declaration of dividends on ECI Common Stock will be at the discretion
of the ECI Board. The ECI Board has not adopted a dividend policy as such.
Subject to legal and contractual restrictions, its decisions regarding
dividends will be based on all considerations that in its business judgment
are relevant at the time, including past and projected earnings, cash flows,
economic, business and securities market conditions and anticipated
developments concerning ECI's business and operations.
ECI's cash flow and the consequent ability of ECI to pay any dividends on
ECI Common Stock will be substantially dependent upon ECI's earnings and cash
flow available after its debt service and the availability of such earnings to
ECI by way of dividends, distributions, loans and other advances. ECI does not
intend to pay any dividends on the ECI Common Stock in the foreseeable future.
ECI PREFERRED STOCK
Under the Certificate, the ECI Board is authorized to issue ECI Preferred
Stock, in one or more series, and to fix the number of shares constituting
such series and the designation of such series, the voting powers (if any) of
the shares of such series, and the preferences and relative, participating,
optional or other special rights, if any, and any qualifications, limitations
or restrictions thereof, of the shares of such series. See "--Antitakeover
Effects of Certain Provisions of the Certificate and By-laws."
85
<PAGE>
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE AND BY-LAWS
The Certificate and ECI's By-laws contain certain provisions, that could
make the acquisition of ECI by means of a tender offer, a proxy contest or
otherwise more difficult. The description set forth below is intended as a
summary only and is qualified in its entirety by reference to the Certificate
and the By-laws, which are attached as exhibits to ECI's Registration
Statement on Form S-4 relating to the ECI Common Stock.
Classified Board of Directors. The Certificate provides that the ECI Board
will be divided into three classes of directors, with the classes to be as
nearly equal in number as possible. The ECI Board consists of the persons
referred to in "Directors of ECI" above. The Certificate provides that, of the
initial directors of ECI, approximately one-third will continue to serve until
the first succeeding annual meeting of ECI's stockholders, approximately one-
third will continue to serve until the second succeeding annual meeting of
ECI's stockholders following the effectiveness of the Certificate and
approximately one-third will continue to serve until the second succeeding
annual meeting of ECI's stockholders following the effectiveness of the
Certificate. Of the initial directors, Salvatore Muoio and Richard Goodwin
will serve until such first succeeding annual meeting of ECI's stockholders,
John G. Vondras and Sir Shridath S. Ramphal will serve until such second
succeeding annual meeting of ECI's stockholders and Jeffrey J. Prosser and
John P. Raynor will serve until such third succeeding annual meeting of ECI's
stockholders. At each annual meeting of ECI's stockholders, successors to the
class of directors whose term expires at the annual meeting will be elected
for a term expiring at the third succeeding annual meeting of stockholders.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the ECI Board. At
least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the members of the ECI Board.
Such a delay may help ensure that ECI's directors, if confronted by a
stockholder attempting to force a proxy contest, a tender or exchange offer or
an extraordinary corporate transaction, would have sufficient time to review
the proposal as well as any available alternatives to the proposal and to act
in what they believe to be the best interest of the stockholders. The
classification provisions will apply to every election of directors, however,
regardless of whether a change in the composition of the ECI Board would be
beneficial to ECI and its stockholders and whether or not a majority of ECI's
stockholders believe that such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to obtain control of ECI, even though such an attempt
might be beneficial to ECI and its stockholders. The classification of the ECI
Board could thus increase the likelihood that incumbent directors will retain
their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of ECI's Common Stock by purchasers
whose objective is to take control of ECI and remove a majority of the members
of the ECI Board, the classification of the ECI Board could tend to reduce the
likelihood of fluctuations in the market price of ECI Common Stock that might
result from accumulations of large blocks for such a purpose. Accordingly,
stockholders could be deprived of certain opportunities to sell their shares
of ECI Common Stock at a higher market price than might otherwise be the case.
Notwithstanding the foregoing, the Certificate provides that whenever the
holders of any one or more series of ECI Preferred Stock have the right,
voting separately as a class or series, to elect directors, such directors
will not be classified, unless expressly provided by the terms of such series
of ECI Preferred Stock.
Number of Directors; Removal; Filling Vacancies. The Certificate provides
that the business and affairs of ECI will be managed by or under the direction
of a board of directors, consisting of not less than three nor more than
fifteen directors, the exact number thereof to be determined from time to time
by affirmative vote of a majority of the entire ECI Board. In addition, the
Certificate provides that any vacancy on the ECI Board that results from an
increase in the number of directors, and any other vacancy occurring in the
ECI Board only may be filled by a majority of the directors then in office,
even if less than a quorum, or by a sole remaining director.
86
<PAGE>
Under the Delaware General Corporation Law (the "DGCL"), unless otherwise
provided in the Certificate, directors serving on a classified board may only
be removed by the stockholders for cause. The Certificate does not provide
that directors may be removed without cause.
Notwithstanding the foregoing, the Certificate provides that whenever the
holders of any one or more series of ECI Preferred Stock have the right,
voting separately as a class or series, to elect directors, the election,
removal, term of office, filling of vacancies and other features of such
directorships will be governed by the terms of the Certificate applicable
thereto.
Special Meetings. The By-laws provide that special meetings of stockholders
will be called by the ECI Board. Moreover, the business permitted to be
conducted at any special meeting of stockholders is limited to the purposes
specified in the notice of meeting given by ECI.
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals. The By-laws establish an advance notice procedure for stockholders
to make nominations of candidates for election of directors, or to bring other
business before an annual meeting of stockholders of ECI (the "Stockholder
Notice Procedure").
The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the ECI Board, or by a stockholder who
has given timely written notice to the Secretary of ECI prior to the meeting
at which directors are to be elected, will be eligible for election as
directors of ECI. The Stockholder Notice Procedure provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, the ECI Board or by a stockholder who has
given timely written notice to the Secretary of ECI of such stockholder's
intention to bring such business before such meeting. Under the Stockholder
Notice Procedure, for stockholder notice in respect of the annual meeting of
ECI's stockholders to be timely, such notice must be delivered to the
Secretary of ECI not less than 70 days nor more than 90 days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by more than
20 days, or delayed by more than 70 days, from such anniversary date, notice
by stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 70th day prior to such annual meeting or the 10th day following
the day on which public announcement of the date of such meeting is first
made.
Under the Stockholder Notice Procedure, a stockholder's notice to ECI
proposing to nominate a person for election as a director must contain certain
information, including, without limitation, the identity and address of the
nominating stockholder, the class and number of shares of stock of ECI that
are beneficially owned by such stockholder and, as to each person whom the
stockholder proposes to nominate for election or reelection as a director, (i)
the name, age, business address and residence of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number
of shares of capital stock of ECI that are beneficially owned by the person
and (iv) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Rule 14A under the Exchange Act. Under the Stockholder Notice Procedure, a
stockholder's notice relating to the conduct of business other than the
nomination of directors must contain certain information about such business
and about the proposing stockholder, including, without limitation, a brief
description of the business the stockholder proposes to bring before the
meeting, the reasons for conducting such business at such meeting, the name
and address of such stockholder, the class and number of shares of stock of
ECI beneficially owned by such stockholder, and any material interest of such
stockholder in the business so proposed. If the chairman of the meeting
determines that a person was not nominated, or other business was not brought
before the meeting, in accordance with the Stockholder Notice Procedure, such
person will not be eligible for election as a director, or such business will
not be conducted at any such meeting, as the case may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the ECI Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the ECI Board, to inform stockholders about such qualifications.
By requiring advance
87
<PAGE>
notice of other proposed business, the Stockholder Notice Procedure will also
provide a more orderly procedure for conducting annual meetings of
stockholders and, to the extent deemed necessary or desirable by the ECI
Board, will provide the ECI Board with an opportunity to inform stockholders,
prior to such meetings, of any business proposed to be conducted at such
meetings, together with any recommendations of the ECI Board regarding action
to be taken with respect to such business, so that stockholders can better
decide whether to attend such a meeting or to grant a proxy regarding the
disposition of any such business.
Although the By-laws do not give the ECI Board any power to approve or
disapprove stockholder nominations for the election of directors or proper
stockholder proposals for action, they may have the effect of precluding a
contest for the election of directors or the consideration of stockholder
proposals if the proper procedures are not followed, and of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its own proposal, without regard to
whether consideration of such nominees or proposals might be harmful or
beneficial to ECI and its stockholders.
Stockholder Meetings. The By-laws provide that the ECI Board and the
chairman of a meeting may adopt rules for the conduct of stockholder meetings
and specify the types of rules that may be adopted (including the
establishment of an agenda, rules relating to presence at the meeting of
persons other than stockholders, restrictions on entry at the meeting after
commencement thereof and the imposition of time limitations for questions by
participants at the meeting).
ECI Preferred Stock. The Certificate authorizes the ECI Board to provide for
series of ECI Preferred Stock and, with respect to each such series, to fix
the number of shares constituting such series and the designation of such
series, the voting power (if any) of the shares of such series, and the
preferences and relative, participating, optional or other special rights, if
any, and any qualifications, limitations or restrictions thereof, of the
shares of such series.
ECI believes that the ability of the ECI Board to issue one or more series
of ECI Preferred Stock will provide ECI with flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs which might arise. The authorized shares of ECI Preferred Stock, as well
as shares of ECI Common Stock, will be available for issuance without further
action by ECI's stockholders, unless such action is required by applicable law
or the rules of any stock exchange or automated quotation system on which
ECI's securities may be listed or traded. The American Stock Exchange
currently requires stockholder approval as a prerequisite to listing shares in
several instances, including where the present or potential issuance of shares
could result in a 20% increase in the number of shares of common stock
outstanding or in the amount of voting securities outstanding. If the approval
of ECI's stockholders is not required for the issuance of shares of ECI
Preferred Stock or ECI Common Stock, the ECI Board may determine not to seek
stockholder approval.
Although the ECI Board has no intention at the present time of doing so, it
could issue a series of ECI Preferred Stock that could, depending on the terms
of such series, impede the completion of a merger, tender offer or other
takeover attempt. The ECI Board will make any determination to issue such
shares based on its judgment as to the best interests of ECI and its
stockholders. The ECI Board, in so acting, could issue ECI Preferred Stock
having terms that could discourage an acquisition attempt through which an
acquiror may be able to change the composition of the ECI Board, including a
tender offer or other transaction that some, or a majority, of ECI's
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock.
Amendment of Certain Provisions of the Certificates and By-laws. Under the
DGCL, the stockholders of a corporation have the right to adopt, amend or
repeal the by-laws and, with the approval of the board of directors, the
certificate of incorporation of a corporation. In addition, if the certificate
of incorporation so provides, the by-laws may be adopted, amended or repealed
by the board of directors. The Certificate provides that the By-laws may be
amended by the ECI Board or by the stockholders.
88
<PAGE>
Elimination of Liability of Directors. The Certificate provides that a
director of ECI will not be personally liable to ECI or its stockholders for
monetary damages for breach of fiduciary duty as a director except for
liability (i) for any breach of the director's duty of loyalty to ECI or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, which concerns unlawful payments of dividends, stock purchases or
redemptions, or (iv) for any transactions from which the director derived an
improper personal benefit.
LEGAL MATTERS
Cahill Gordon & Reindel (a partnership including a professional
corporation), New York, New York, counsel to the Company, ECI, and Mr. Prosser
has delivered its opinion to the effect that the ECI Common Stock to be
distributed to holders of Company Common Stock in the Transaction, when
distributed in accordance with the terms of the Merger Agreement, will be
validly issued, fully paid and nonassessable.
EXPERTS
The financial statements as of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996 and the related
financial statement schedules incorporated in this Proxy Statement-Prospectus
by reference to the Company's Annual Report on Form 10-K, and the financial
statements and related financial statement schedules of Atlantic Tele-Network
Co. as of December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996 included in this Proxy Statement-Prospectus,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports, which are included or incorporated herein by reference and have
been so included or incorporated in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
89
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES OF ATLANTIC TELE-NETWORK
CO.
AND SUBSIDIARIES--AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE YEARS
ENDED
DECEMBER 31, 1994, 1995 AND 1996
Independent Auditors' Report........................................... F-2
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Income...................................... F-4
Consolidated Statements of Stockholder's Equity........................ F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements............................. F-7
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF ATLANTIC TELE-NETWORK CO.
AND
SUBSIDIARIES--AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED MARCH
31, 1996 AND 1997
Consolidated Condensed Balance Sheets.................................. F-16
Consolidated Condensed Statements of Income............................ F-17
Consolidated Condensed Statements of Cash Flows........................ F-18
Notes to Consolidated Condensed Financial Statements................... F-19
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Atlantic Tele-Network Co. and subsidiaries
We have audited the accompanying consolidated balance sheets of Atlantic Tele-
Network Co. and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of income, stockholder's equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of Atlantic Tele-Network Co.'s management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Atlantic Tele-Network Co. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
March 25, 1997
Omaha, Nebraska
F-2
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 14,143 $ 3,352
Accounts receivable, net................................. 14,275 14,236
Materials and supplies................................... 6,510 7,016
Prepayments and other current assets..................... 8,163 3,436
-------- --------
Total current assets................................... 43,091 28,040
Fixed assets:
Property, plant and equipment............................ 185,084 216,589
Less accumulated depreciation............................ (87,530) (98,239)
Cost in excess of underlying book value, less accumulated 32,256 31,224
amortization of $8,874,000 and $9,906,000............... -------- --------
Net fixed assets....................................... 129,810 149,574
Property costs recoverable from future revenues, net of ac-
cumulated amortization of $1,406,000 in 1996.............. 20,000 22,905
Other assets............................................... 10,952 9,808
-------- --------
$203,853 $210,327
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable............................................ $ 457 $ 11,431
Accounts payable......................................... 10,317 10,373
Accrued taxes............................................ 3,301 645
Advance payments and deposits............................ 2,102 2,074
Other current liabilities................................ 7,455 6,119
Current portion of long-term debt........................ 8,208 7,067
-------- --------
Total current liabilities.............................. 31,840 37,709
Deferred income taxes and tax credits...................... 12,364 13,891
Long-term debt, excluding current portion.................. 91,028 86,589
Other long-term liabilities................................ 9,457 6,702
Due to affiliates.......................................... 23,411 23,219
Minority interest.......................................... 253 334
Contingencies and commitments (Note L)
Stockholder's equity:
Common Stock, par value $10 per share; 50,000 shares au-
thorized, 2,000 shares issued and outstanding........... 20 20
Paid-in capital.......................................... 2,980 2,980
Retained earnings........................................ 32,500 38,883
-------- --------
Total stockholder's equity............................. 35,500 41,883
-------- --------
$203,853 $210,327
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Telephone operations:
Revenues:
Local exchange service.... $ 23,082 $ 21,335 $ 23,122
Access charges and
revenues................. 14,689 13,608 16,124
Universal Service Fund.... 12,081 12,151 11,360
Billing and other
revenues................. 3,943 3,638 4,580
Directory advertising..... 2,916 2,730 2,563
-------- -------- --------
Total revenues.......... 56,711 53,462 57,749
Expenses:
Plant specific operations. 8,955 9,059 11,546
Plant nonspecific
operations............... 14,262 15,586 16,470
Customer operations....... 4,152 3,835 3,925
Corporate operations...... 8,652 6,907 6,242
Taxes other than income... 2,669 2,614 2,729
-------- -------- --------
Total expenses.......... 38,690 38,001 40,912
-------- -------- --------
Income from telephone
operations............. 18,021 15,461 16,837
Other operations:
Revenues:
Cellular services......... 3,616 5,910 5,480
Product sales and rentals. 4,879 5,128 5,435
-------- -------- --------
Total revenues.......... 8,495 11,038 10,915
Expenses of other
operations................. 6,553 8,399 8,231
-------- -------- --------
Income from other
operations............... 1,942 2,639 2,684
Non-operating revenues and
expenses:
Interest expense............ (9,764) (9,811) (9,353)
Interest income............. 244 949 271
Other revenues and expenses,
net........................ (2,279) (3,138) (2,588)
-------- -------- --------
Non-operating revenues and
expenses, net............ (11,799) (12,000) (11,670)
-------- -------- --------
Income before income taxes and
minority interest............ 8,164 6,100 7,851
Income taxes.................. (3,054) (1,631) (2,215)
Minority interest............. (47) (87) (81)
-------- -------- --------
Net income.................... $ 5,603 $ 4,382 $ 5,555
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
------ ------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1994................. $20 $2,980 $23,751 $26,751
Minimum pension liability adjustment,
net of income taxes of $250,000....... -- -- 419 419
Net income............................. -- -- 5,063 5,063
--- ------ ------- -------
BALANCE, December 31, 1994............... 20 2,980 29,233 32,233
Minimum pension liability adjustment,
net of income tax benefit of $666,000. -- -- (1,115) (1,115)
Net income............................. -- -- 4,382 4,382
--- ------ ------- -------
BALANCE, December 31, 1995............... 20 2,980 32,500 35,500
Minimum pension liability adjustment,
net of income taxes of $494,000....... -- -- 828 828
Net income............................. -- -- 5,555 5,555
--- ------ ------- -------
BALANCE, December 31, 1996............... $20 $2,980 $38,883 $41,883
=== ====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 5,063 $ 4,382 $ 5,555
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization................ 12,567 13,485 14,276
Deferred income taxes........................ 1,403 2,677 903
Minority interest............................ 47 87 81
Changes in operating assets and liabilities:
Accounts receivable........................ (795) (2,838) 39
Materials and supplies..................... 898 (1,631) (506)
Accounts payable........................... (343) 3,668 56
Accrued taxes.............................. (257) (2,328) (2,656)
Other...................................... (811) (362) 2,927
-------- -------- --------
Net cash flows from operating activities... 17,772 17,140 20,675
Cash flows from investing activities:
Capital expenditures........................... (11,712) (16,314) (36,668)
Insurance proceeds............................. 10,074 -- --
-------- -------- --------
Net cash flows from investing activities... (1,638) (16,314) (36,668)
Cash flows from financing activities:
Issuance of long-term debt, net of issuance
costs......................................... 18 4,936 1,336
Repayment of long-term debt.................... (6,596) (6,891) (6,916)
Net borrowings (repayments) on notes........... 32 (115) 10,974
Change in affiliate borrowings................. (461) (506) (192)
-------- -------- --------
Net cash flows from financing activities... (7,007) (2,576) 5,202
-------- -------- --------
Net change in cash............................... 9,127 (1,750) (10,791)
Cash, beginning of year.......................... 6,766 15,893 14,143
-------- -------- --------
Cash, end of year................................ $ 15,893 $ 14,143 $ 3,352
======== ======== ========
Supplemental cash flow information:
Interest paid.................................. $ 7,500 $ 7,075 $ 9,171
======== ======== ========
Income taxes paid.............................. $ 2,150 $ 1,900 $ --
======== ======== ========
Non-Cash Activities:
Change in minimum pension liability............ $ (918) $ 1,842 $ (1,071)
======== ======== ========
Change in pension intangibles.................. $ (249) $ 61 $ 251
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
A. SIGNIFICANT ACCOUNTING POLICIES
GENERAL--Atlantic Tele-Network, Co. (ATN-VI), a wholly-owned subsidiary of
Atlantic Tele-Network, Inc. (ATN, Inc.), is engaged principally in providing
telecommunication services, including local telephone service, access to long-
distance service, and cellular service, in the U.S. Virgin Islands.
BASIS OF PRESENTATION--The consolidated financial statements include the
accounts of ATN-VI, and its wholly-owned subsidiaries, including the Virgin
Island Telephone Corporation (Vitelco), Vitelcom, Inc., and its 90% owned
subsidiary, Vitelcom Cellular, Inc. The accounting policies of ATN-VI and its
subsidiaries conform to generally accepted accounting principles and as to
Vitelco, reflect practices appropriate to the telephone industry as prescribed
by Part 32 Uniform System of Accounts prescribed by the Federal Communications
Commission (the FCC). All material intercompany transactions and balances have
been eliminated in consolidation. Certain reclassifications have been made to
the 1994 and 1995 financial statements to conform with the 1996 presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REGULATORY ACCOUNTING--ATN-VI's telephone subsidiary follows the accounting
for regulated enterprises prescribed by Statement of Financial Accounting
Standards No. 71, Accounting for the Affects of Certain Types of Regulation
(SFAS 71). This accounting recognizes the economic effects of rate regulation
by recording cost and a return on investment as such amounts are recovered
through rates authorized by regulatory authorities. Accordingly under SFAS 71,
plant and equipment is depreciated over lives approved by regulators and
certain costs and obligations are deferred based upon approvals received from
regulators to permit recovery of such amounts in future years.
CASH--ATN-VI considers all investments with a maturity at acquisition of
three months or less to be cash equivalents.
MATERIALS AND SUPPLIES--Materials and supplies are carried in inventory
principally at weighted average cost.
FIXED ASSETS--Property, plant and equipment are recorded at original cost.
The original cost of telephone plant in service and under construction
includes an allocation of indirect costs applicable to construction. Fixed
assets also include the acquisition cost of Vitelco in excess of the
underlying book value, which is being amortized over forty years on the
straight-line method, and is not considered in the determination of rates.
DEPRECIATION--ATN-VI calculates depreciation on outside plant used to
provide interstate access (acquired after December 31, 1989) and on local
regulated plant (acquired after December 31, 1991) using the equal life group
method. The remaining telephone plant in service is depreciated on the
straight-line method. This has resulted in a composite annualized rate of
6.4%, 6.9% and 6.3% for the years ended December 31, 1994, 1995 and 1996,
respectively. The original cost of depreciable property retired, together with
removal cost less any salvage realized, is charged to accumulated
depreciation. No gain or loss is recognized in connection with ordinary
retirements of depreciable property. Repairs and replacements of minor items
of property are charged to maintenance expense.
F-7
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DEBT ISSUANCE COSTS--Costs related to the issuance of debt are being
amortized over the term of the debt.
INCOME TAXES--ATN-VI uses an asset and liability approach for reporting
taxes and measures deferred tax assets and liabilities based on temporary
differences existing at each balance sheet date using enacted tax rates. ATN-
VI files a consolidated U.S. Virgin Islands income tax return with its
subsidiaries. Investment tax credits related to regulated telephone operations
have been deferred and are being amortized to income over the service lives of
the related property.
REVENUE--Local exchange service revenues, exchange access charges and
revenues are recognized when earned, regardless of the period in which they
are billed. Exchange access charges are billed by ATN-VI to the long distance
carriers (primarily AT&T) for interconnection with local facilities and to
end-user business and residential customers for access to long distance
facilities.
INCOME PER SHARE--Income per share has not been presented as this
information is not considered meaningful due to the reorganization of ATN Inc.
B. REORGANIZATION OF ATLANTIC TELE-NETWORK, INC.
On January 29, 1997, ATN Inc. announced that its Board of Directors and its
two principal stockholders had approved the terms of the split-up of ATN Inc.
into two separate public companies (the Transaction). Emerging Communications,
Inc. (ECI), will contain all the outstanding stock of ATN-VI and certain other
assets and liabilities. ATN Inc. will retain its business and operations in
Guyana and certain other assets and liabilities. The Transaction is
conditioned upon, among other things, approval of the Transaction by the
holders of a majority of the outstanding shares of ATN Inc. common stock,
completion of $17.4 million of long-term financing by ECI or ATN-VI, receipt
from the Internal Revenue Service of a tax ruling to the effect that the
transfer of assets and liabilities to ECI and the distribution of ECI common
stock to the shareholders of ATN Inc. will be tax free for federal income tax
purposes to ATN Inc. and its shareholders, the listing of ECI common stock on
the American Stock Exchange and the continued listing of ATN Inc. common stock
on such exchange and the absence of any material adverse change in the
businesses of the companies.
C. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
-------- --------
<S> <C> <C>
Subscribers and installment sales, net of allowance for
doubtful accounts of $1,626,000 and $1,588,000........ $ 11,362 $ 10,240
Connecting companies................................... 626 792
Other.................................................. 2,287 3,204
-------- --------
$ 14,275 $ 14,236
======== ========
</TABLE>
F-8
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
D. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
--------- ---------
<S> <C> <C>
Outside plant........................................ $ 84,145 $ 114,101
Central office equipment............................. 40,453 43,302
Land and building.................................... 13,247 13,562
Station equipment.................................... 5,894 5,973
Furniture and office equipment....................... 3,463 3,516
Construction in process.............................. 15,613 12,344
Other................................................ 9,469 9,557
--------- ---------
Total used in telephone operations................. 172,284 202,355
Used in other operations............................. 12,800 14,234
--------- ---------
$ 185,084 $ 216,589
========= =========
E. PROPERTY COSTS RECOVERABLE FROM FUTURE REVENUES
On September 15, 1995, Hurricane Marilyn struck the Virgin Islands causing
extensive damage to the outside telephone plant of Vitelco. None of the damage
was covered by insurance. Vitelco's estimate of the historical cost of the
facilities damaged or destroyed by Hurricane Marilyn is approximately $26.3
million with associated accumulated depreciation of approximately $9.1 million.
These costs have been removed from the property accounts and along with certain
excess maintenance costs and costs of removal of $7.1 million have been
classified as property costs recoverable from future revenues because ATN-VI
anticipates that future revenue in an amount at least equal to the capitalized
cost will result from inclusion of these costs in allowable costs for rate
making purposes. Vitelco has received approval from the FCC to include the
interstate portion of these costs in its rate base and amortize them over a
five year period. Vitelco has applied to the Virgin Islands Industrial
Development Corporation (IDC) for a five year rebate of 90% of its Virgin
Island income taxes and 100% of its Virgin Islands gross receipts and certain
other taxes to assist in recovering the intrastate portion of the
telecommunications plant. At the date of this report, the application is still
pending before the IDC.
F. OTHER ASSETS
Other assets include the following:
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
--------- ---------
<S> <C> <C>
Rural Telephone Finance Corporation certificates and
dividends receivable................................ $ 5,057 $ 5,781
Pension and retirement plan intangibles.............. 2,741 1,877
Debt issuance costs.................................. 1,736 1,460
Other................................................ 1,418 690
--------- ---------
$ 10,952 $ 9,808
========= =========
</TABLE>
G. NOTES PAYABLE
At December 31, 1995 and 1996, Vitelco had short-term notes payable to an
insurance company of $457,000 and $431,000, respectively, with interest rates
of 5.5% and 5.7%, respectively.
F-9
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Vitelco has a $5 million revolving line of credit with a variable rate of
interest with the Rural Telephone Finance Corporation (RTFC) which expires in
March 2000 and a $15 million revolving line of credit with a variable rate of
interest also with the RTFC expiring April 1997. As of December 31, 1995, no
amounts were borrowed under these lines of credit. At December 31, 1996,
Vitelco has borrowings of $5 million for the line of credit expiring in March
2000 and $6 million for the line of credit expiring April 1997, both with
interest rates of 6.9%.
H. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Notes payable to RTFC, with principal and interest
payments due quarterly through December 30, 2002:
ATN-VI............................................... $21,203 $19,098
Vitelco.............................................. 27,934 24,142
------- -------
49,137 43,240
Less RTFC subordinated capital certificates............ (8,065) (6,490)
------- -------
41,072 36,750
Notes payable to Rural Utilities Service (RUS) with
principal and interest payments due monthly through
2012.................................................. 57,594 56,901
Other.................................................. 570 5
------- -------
99,236 93,656
Less current portion................................... 8,208 7,067
------- -------
$91,028 $86,589
======= =======
</TABLE>
Interest on the Vitelco note payable to RTFC is fixed at 9.75%. On the ATN-
VI note payable, $1.4 million and $1.3 million with a variable interest rate
of 6.35% and 6.3% was outstanding at December 31, 1995 and 1996, respectively,
with the balance bearing a fixed rate of 8%.
The RUS note arrangement calls for fixed monthly principal and interest
payments of $7.04 per $1,000 of loan balance with any remaining balance due
May 2012. The interest rate on these notes is fixed at 5%.
The RUS and RTFC debt agreements contain provisions which may require
prepayments of RTFC debt in the event of future advances from the RUS. Vitelco
has received approval from the RUS for an additional $35.7 million of long-
term financing under terms similar to its existing RUS debt.
The RTFC and RUS agreements require, among other things, maintenance of
minimum debt service and times interest earned coverages and restrictions on
issuance of additional long-term debt. The RTFC agreement also limits the
payment of dividends by ATN-VI to 40% of ATN-VI's consolidated net income,
contingent upon ATN-VI's ability to meet certain financial ratios (which were
not met at December 31, 1996). Therefore, ATN-VI was prohibited from paying
dividends. At December 31, 1996, the ability of ATN-VI to service its debt was
dependent on funds from its parent or its subsidiaries. The RUS loan and
applicable RUS regulations restrict Vitelco's ability to pay dividends based
upon certain net worth tests with an exception for limited dividend payments
authorized when specific security instrument criteria are unable to be met.
Settlement agreements made in 1989 and 1991 with the U.S. Virgin Islands
Public Service Commission (PSC) also contain restrictions on dividends by
Vitelco which, in general, are more restrictive than those imposed by the RUS.
Dividends by Vitelco are generally limited to 60% of its net income, although
additional amounts are permitted to be paid for
F-10
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the sole purpose of servicing ATN-VI's debt to the RTFC. Under the above
restrictions, at December 31, 1996, Vitelco had approximately $200,000 of
retained earnings available for dividends.
As a condition of being granted the RTFC loan, ATN-VI was required to invest
in subordinated capital certificates with the RTFC. No capital certificates
were amortized against the loan balance during 1995. In 1996, ATN-VI received
a cash repayment of $1,575,000. These certificates are non-interest bearing.
As a member of the RTFC, ATN-VI shares proportionately in the net earnings of
the RTFC. ATN-VI's share of RTFC earnings, included as an offset to interest
expense, was $532,000, $528,000 and $551,000 for the years ended December 31,
1994, 1995 and 1996, respectively. RTFC distributions of net earnings are made
primarily through issuances of patronage capital certificates (included in
other assets) which are redeemed at the option of the RTFC.
The ATN-VI/RTFC loan is secured by a lien on substantially all of the assets
of ATN-VI, and the Vitelco/RTFC loan and the RUS loan are ratably secured by
liens on substantially all of the assets of Vitelco and Vitelcom.
The annual requirements for principal payments for the years 1997 through
2001 are as follows:
<TABLE>
<CAPTION>
RTFC DEBT
--------------
YEARS ENDED DECEMBER 31, VITELCO ATN-VI RUS DEBT OTHER DEBT
------------------------ ------- ------ -------- ----------
<S> <C> <C> <C> <C>
1997.................................. $3,368 $1,162 $2,532 $ 5
1998.................................. 3,642 1,256 2,662 --
1999.................................. 3,938 1,360 2,798 --
2000.................................. 4,258 1,472 2,941 --
2001.................................. 4,604 1,593 3,092 --
</TABLE>
I. INCOME TAXES
The following is a reconciliation from the tax computed at statutory income
tax rates to ATN-VI's income tax expense:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Tax computed at statutory U.S. federal in-
come tax rates............................. $ 2,857 $ 2,135 $ 2,669
U.S. Virgin Islands surtax.................. 286 213 267
Amortization of investment tax credits and
regulatory liability....................... (360) (981) (533)
Amortization of cost in excess of underlying
book value not
deductible for tax purposes................ 386 386 386
Other, net.................................. (115) (122) (574)
-------- -------- --------
Income tax expense.......................... $ 3,054 $ 1,631 $ 2,215
======== ======== ========
</TABLE>
The components of income tax expense allocated to operations are comprised
of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
U.S. Virgin Islands........................ $ 2,011 $ (65) $ 1,845
Deferred.................................... 1,403 2,677 903
Amortization of investment tax credits and
regulatory liability....................... (360) (981) (533)
-------- -------- --------
$ 3,054 $ 1,631 $ 2,215
======== ======== ========
</TABLE>
F-11
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
<S> <C> <C>
Deferred tax liabilities:
Differences between book and tax basis of property....... $ 7,340 $ 7,270
Property costs recoverable from future revenues.......... 7,480 8,566
------- -------
14,820 15,836
Deferred tax assets:
Non-deductible expenses.................................. 761 823
Operating loss carryforwards............................. 2,474 --
Pension costs not currently deductible................... 1,002 507
Regulatory liability..................................... 1,510 1,297
------- -------
5,747 2,627
Total deferred tax liability........................... $ 9,073 $13,209
======= =======
</TABLE>
Upon the adoption of SFAS 109, Accounting for Income Taxes, ATN-VI recorded
a regulatory liability for the cumulative effect of the adoption on ATN-VI's
regulated subsidiary since it was anticipated that these amounts would be
returned to customers through future rates. At December 31, 1995 and 1996,
ATN-VI had a regulatory liability of approximately $4.0 million and $3.5
million which is included in other long term liabilities.
J. PENSION AND RETIREMENT PLANS
ATN-VI's subsidiaries have noncontributory defined benefit plans (the
"Plan") for eligible hourly union employees and salaried employees who are not
members of a collective bargaining unit, who meet certain age and employment
criteria. ATN-VI's funding policy is to contribute to the Plan such amounts
that are necessary to fund the Plan in accordance with funding requirements of
Employee Retirement Income Security Act of 1974. Contributions are intended to
provide not only for benefits attributed to service date, but also for those
expected to be earned in the future. The benefits are based on the
participants' average salary preceding termination for the "salaried plan" and
credited service years for the "hourly plan".
Net periodic pension cost was:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
Service cost..................................... $ 624 $ 497 $ 676
Interest on projected benefit obligation......... 730 825 960
Actual return on assets.......................... (111) (1,217) (1,252)
Net amortization and deferral.................... 239 1,007 1,055
------ ------ -------
Net periodic pension cost........................ $1,482 $1,112 $ 1,439
====== ====== =======
</TABLE>
F-12
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the funded status, the amounts recognized in
the balance sheets of ATN-VI at December 31, 1995 and 1996, and the principle
assumptions of ATN-VI's plans:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits.................................... $ 11,746 $ 13,364
Nonvested benefits................................. 484 356
-------- --------
Accumulated plan benefits............................ $ 12,230 $ 13,720
======== ========
Projected benefit obligation......................... $(13,306) $(14,982)
Fair value of plan assets............................ 9,430 11,767
-------- --------
Plan projected benefit obligation in excess of as-
sets................................................ (3,876) (3,215)
Unrecognized net loss................................ 3,454 2,547
Unrecognized prior service costs..................... 530 1,010
Unrecognized net obligation at January 1, 1987....... 1,096 939
-------- --------
Pension prepaid included in the balance sheet........ $ 1,204 $ 1,281
======== ========
</TABLE>
In determining the post retirement benefit obligation, the discount rate was
7.0% and 7.4% at December 31, 1995 and 1996, respectively, and the expected
rate return on invested assets was 8.0% for both years.
In accordance with Statement of Financial Accounting Standards No. 87,
Employers Accounting for Pensions, at December 31, 1995 and 1996, ATN-VI has
recorded an additional minimum pension liability equal to the unfunded pension
benefit obligation of $4,303,000 and $3,234,000, and an intangible asset (to
the extent of the additional liability) equal to the aggregate of the prior
service cost and transition obligation of $1,622,000 and $1,877,000. The
change in the excess of the minimum pension liability over the intangible of
$669,000, $(1,781,000) and $1,322,000 at December 31, 1994, 1995 and 1996,
respectively, has been recorded as a credit to (reduction in) equity, net of
taxes (benefits) of $250,000, $(666,000) and $494,000 at December 31, 1994,
1995 and 1996, respectively.
In addition, ATN-VI and its subsidiaries have an investment and savings plan
for all salaried employees which covers all employees of ATN-VI and its
subsidiaries who are not members of a collective bargaining unit and who meet
certain age and employment criteria. With respect to such plan, ATN-VI
expensed $146,000, $165,000 and $165,000 for the years ended December 31,
1994, 1995 and 1996. ATN-VI also has a 401(k) plan for hourly union employees
who meet certain age and employment requirements. Employee contributions are
elective and no contributions are required by ATN-VI.
In 1991, ATN-VI established an Employees' Stock Ownership Plan (ESOP) to
provide a means for employees to participate in the ownership of ATN-VI. All
non-craft salaried and hourly employees of ATN-VI and its participating
affiliates who are not members of a collective bargaining unit and who have
attained age 21 and completed one year of service are eligible to participate
in the ESOP.
ATN, Inc. may make discretionary contributions to the ESOP in the form of
ATN, Inc. stock (or cash which is used to acquire stock of ATN, Inc., either
on the open market or directly from ATN, Inc.). The ESOP is permitted to
borrow money to purchase ATN, Inc. stock, although such borrowing is not
currently contemplated. No contributions were made in 1994, 1995 or 1996.
F-13
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition to providing pension benefits, ATN-VI provides unfunded
noncontributory defined medical, dental, vision and life benefits for both
retired, hourly and salaried employees who meet certain age and employment
criteria. The cost of these postretirement benefits is accrued during the
employee's active service period.
Net postretirement benefit cost was:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost................................... $ 57 $ 68 $ 73
Interest cost.................................. 90 108 116
Transition obligation.......................... 38 38 38
Net other amortization and deferral............ 51 51 68
-------- -------- --------
Net postretirement benefit cost.............. $ 236 $ 265 $ 295
======== ======== ========
</TABLE>
The following table sets forth the funded status and the amounts recognized
in the balance sheet of ATN-VI:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.............................................. $ 251 $ 281
Eligible actives...................................... 338 412
Non-eligible actives.................................. 1,127 1,053
------- -------
1,716 1,746
Fair value of plan assets............................... -- --
------- -------
Accumulated benefit obligation in excess of assets...... (1,716) (1,746)
Unrecognized net gain................................... (143) (263)
Unrecognized prior service costs........................ 615 543
Unrecognized net obligation............................. 643 605
------- -------
Pension liability included in the balance sheet......... $ (601) $ (861)
======= =======
</TABLE>
In determining the accumulated postretirement benefit obligations, the
discount rate was assumed to be 7.0% in 1995 and 7.4% in 1996. For 1996, the
assumed health care cost trend rate was 9.9% and 8.9% for pre-age 65 and post-
age 65 participants, respectively, declining gradually to 5.5% and 5.75% over
the next 15 years. A 1% increase in assumed health care cost trend rate would
increase the service and interest cost expense by $19,000 for 1996 and
increase the accumulated postretirement benefits obligations by $163,000.
K. TRANSACTIONS WITH AFFILIATES
ATN-VI had a note payable to ATN-Inc. of $23,411,000 and $23,219,000 at
December 31, 1995 and 1996, respectively. A variable interest rate is charged
on this note which was 7.5% and 9.75% at December 31, 1995 and 1996,
respectively. Interest expense for the years ended December 31, 1994, 1995 and
1996, was $1,812,000, $2,250,000 and $2,155,000, respectively. Interest is not
charged on intercompany balances to affiliates.
ATN-VI shares general and administrative costs, such as legal, accounting
and consulting, rent and telephone, with ATN, Inc. These shared costs have
historically been allocated to ATN-VI in approximately the same proportion as
operating revenues of ATN-VI bear to ATN Inc.'s total operating revenues. ATN-
VI's share
F-14
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of these general and administrative costs for the years ended December 31,
1994, 1995 and 1996 was $2,988,000, $2,049,000 and $1,398,000, respectively.
Management believes the allocation methods used are reasonable. However, such
costs are not necessarily indicative of the costs that would have been
incurred if ATN-VI had been operated as an unaffiliated entity. It is not
practical to estimate these costs on a stand-alone basis.
L. CONTINGENCIES AND COMMITMENTS
At the date of this report, ATN-VI had no coverage for its outside plant or
for damages caused by wind storms.
ATN-VI has various litigation cases and claims in the normal course of
business, the resolution of which, in the opinion of management, is not
expected to have a material effect on the financial statements.
M. FAIR VALUE DISCLOSURE
Management has determined the carrying amounts of cash, accounts receivable,
accounts payable, and notes payable are a reasonable estimate of their fair
value. The fair value of long-term debt is estimated using a discounted cash
flow analysis. At December 31, 1995 and 1996, the carrying value of long-term
debt was $99,236,000 and $93,656,000 and the estimated fair value was
$91,999,000 and $92,550,000, respectively.
N. CREDIT CONCENTRATIONS
Revenues from AT&T comprised approximately 13%, 12% and 13% of consolidated
total revenues in 1994, 1995 and 1996, respectively. These revenues consist
principally interstate network access and billing and collection service
revenues. No other revenue source accounted for more than 10% of total
revenues for the years presented.
F-15
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 3,352 $ 6,792
Accounts receivable, net............................ 14,236 14,720
Materials and supplies.............................. 7,016 6,831
Prepayments and other current assets................ 3,436 3,957
--------- ---------
Total current assets.............................. 28,040 32,300
Fixed assets:
Property, plant and equipment....................... 216,589 219,687
Less accumulated depreciation....................... (98,239) (101,288)
Franchise rights and cost in excess of underlying
book value, less accumulated amortization of
$9,906,000 and $10,164,000......................... 31,224 30,966
--------- ---------
Net fixed assets.................................. 149,574 149,365
Property costs recoverable from future revenues....... 22,905 22,391
Other assets.......................................... 9,808 9,537
--------- ---------
$ 210,327 $ 213,593
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable....................................... $ 11,431 $ 11,088
Accounts payable.................................... 10,373 12,095
Accrued taxes....................................... 645 1,407
Advance payments and deposits....................... 2,074 2,323
Other current liabilities........................... 6,119 6,016
Current portion of long-term debt................... 7,067 7,061
--------- ---------
Total current liabilities......................... 37,709 39,990
Deferred income taxes and tax credits................. 13,891 13,937
Long-term debt, excluding current portion............. 86,589 85,686
Other long-term liabilities........................... 6,702 6,578
Due to affiliates..................................... 23,219 22,758
Minority interest..................................... 334 341
Contingencies and commitments (Note C)
Stockholder's equity:
Common stock, par value $10 per share; 50,000 shares
authorized;
2,000 shares issued and outstanding................. 20 20
Paid-in capital..................................... 2,980 2,980
Retained earnings................................... 38,883 41,303
--------- ---------
Total stockholder's equity........................ 41,883 44,303
--------- ---------
$ 210,327 $ 213,593
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
F-16
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Telephone Operations:
Revenues:
Local exchange service................................ $ 5,699 $ 6,637
Access charges and revenues........................... 3,364 4,192
Universal Service Fund................................ 2,802 3,591
Billing and other revenues............................ 873 1,296
Directory advertising................................. 649 487
--------- ---------
Total revenues...................................... 13,387 16,203
Expenses:
Plant specific operations............................. 2,590 2,422
Plant non-specific operations......................... 3,445 4,764
Customer operations................................... 928 1,041
Corporate operations.................................. 1,530 1,475
Taxes other than income............................... 789 756
--------- ---------
Total expenses...................................... 9,282 10,458
--------- ---------
Income from telephone operations.................... 4,105 5,745
Other Operations:
Revenues:
Cellular services..................................... 1,638 1,149
Product sales and rentals............................. 1,286 1,030
Total revenues...................................... 2,924 2,179
Expenses of other operations.......................... 2,074 1,860
--------- ---------
Income from other operations........................ 850 319
Non-operating Revenues and Expenses:
Interest expense........................................ (2,361) (2,120)
Interest income......................................... 128 46
Other revenues and expenses............................. (710) (708)
--------- ---------
Non-operating revenues and expenses, net.............. (2,943) (2,782)
--------- ---------
Income before income taxes and minority interest.......... 2,012 3,282
Income taxes.............................................. (593) (855)
Minority interest......................................... (30) (7)
--------- ---------
Net income................................................ $ 1,389 $ 2,420
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
F-17
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Net cash flows provided by operating activities.......... $ 4,882 $ 7,790
Cash flows from investing activities:
Capital expenditures................................... (9,420) (3,098)
--------- ---------
Net cash used in investing activities................ (9,420) (3,098)
Cash flows from financing activities:
Repayment of long-term debt............................ (868) (909)
Net borrowings (repayments) on notes................... 4,543 (343)
--------- ---------
Net cash flows provided (used) by financing activi- 3,675 (1,252)
ties................................................ --------- ---------
Net increase in cash..................................... (863) 3,440
Cash, beginning of period................................ 14,143 3,352
--------- ---------
Cash, end of period...................................... $ 13,280 $ 6,792
========= =========
Supplemental cash flow information:
Interest paid.......................................... $ 1,830 $ 1,819
========= =========
Income taxes paid...................................... -- --
========= =========
Depreciation and Amortization Expense.................. $ 3,214 $ 4,564
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
F-18
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
A. GENERAL
Significant Accounting Policies--The consolidated balance sheet of ATN-VI at
December 31, 1996 has been taken from audited financial statements at that
date. All other consolidated condensed financial statements contained herein
have been prepared by ATN-VI and are unaudited. ATN-VI is a wholly owned
subsidiary of Atlantic Tele-Network, Inc. (ATN Inc.). The consolidated
condensed financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in ATN-VI's
Audited Financial Statements for the year ended December 31, 1996.
The accompanying interim consolidated financial statements have not been
audited by independent auditors. However, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary to fairly present the financial statements have been included. The
consolidated financial statements should be read in conjunction with the
audited financial statements and note thereto. The results of operations for
the three months ended March 31, 1996 and 1997 are not necessarily indicative
of the operating results which may be expected for the entire fiscal year
1997.
B. PROPERTY COSTS RECOVERABLE FROM FUTURE REVENUES
On September 15, 1995, Hurricane Marilyn struck the Virgin Islands causing
extensive damage to the outside telephone plant of Vitelco. None of the damage
was covered by insurance. The historical cost of the facilities damaged or
destroyed by Hurricane Marilyn was approximately $26.3 million with associated
accumulated depreciation of approximately $9.1 million. These costs have been
removed from the property accounts and along with certain excess maintenance
costs and costs of removal of $7.1 million have been classified as property
costs recoverable from future revenues because ATN-VI anticipates that future
revenue in an amount at least equal to the capitalized cost will result from
inclusion of these costs in allowable costs for rate making purposes. Vitelco
has received approval from the Federal Communications Commission to include
the interstate portion of these costs in its rate base and amortize them over
a five year period. In May 1997, Vitelco received approval from the Virgin
Islands Industrial Development Commission for a 5-year exemption commencing
October 1, 1998 from 90% of Virgin Islands income taxes and 100% of Virgin
Islands gross receipts, excise and property taxes to assist in recovering the
intrastate portion of the hurricane related costs.
C. CONTINGENCIES AND COMMITMENTS
At March 31, 1997, ATN-VI had no insurance coverage for its outside plant
for damages caused by wind storms. ATN-VI has subsequently obtained such
insurance coverage in the amount of $30 million per storm and $55 million in
aggregate.
ATN-VI has various litigation cases and claims in the normal course of
business the resolution of which, in the opinion of management, is not
expected to have a material effect on the financial statements.
D. SPLIT UP TRANSACTION
On January 29, 1997, ATN Inc. announced that its Board of Directors and its
two principal stockholders had approved the terms of the split-up of ATN Inc.
into two separate public companies (the Transaction). Emerging Communications,
Inc. (ECI), will contain all the assets and liabilities of ATN-VI and certain
other assets and liabilities. ATN Inc. will retain its business and operations
in Guyana. The Transaction is conditioned upon, among other things, approval
of the Transaction by the holders of a majority of the outstanding shares of
ATN Inc. common stock, completion of $17.4 million of long-term financing by
ECI or ATN-VI, receipt from
F-19
<PAGE>
ATLANTIC TELE-NETWORK CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
the Internal Revenue Service of a tax ruling to the effect that the transfer
of assets and liabilities to ECI and the distribution of ECI common stock to
shareholders of ATN Inc. will be tax free for federal income tax purposes to
ATN Inc. and its shareholders, the listing of ECI Common Stock on the American
Stock Exchange and the continued listing of ATN Inc. Common Stock on such
exchange and the absence of any material adverse change in the businesses of
the companies.
F-20
<PAGE>
ANNEX A
TO
PROXY STATEMENT-PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
----------------------------------------
SUBSCRIPTION AGREEMENT
----------------------------------------
BETWEEN
ATLANTIC TELE-NETWORK, INC.
AND
EMERGING COMMUNICATIONS, INC.
DATED AUGUST 11, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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ARTICLE I
Definitions
<C> <S> <C>
Section 1.01. Definitions................................................. 2
Section 1.02. Rules of Construction....................................... 6
ARTICLE II
Subscription For and Acquisition of the Shares
Section 2.01. Subscription for the Shares................................. 6
Section 2.02. Acquisition of the Shares................................... 6
Section 2.03. Excluded Assets............................................. 7
Section 2.04. Issuance of the Shares...................................... 7
Section 2.05. Assumption of Liabilities................................... 7
Section 2.06. Excluded Liabilities........................................ 8
Section 2.07. Restricted Assets........................................... 8
Section 2.08. Access to Information....................................... 8
ARTICLE III
Closing Adjustment
Section 3.01. Preliminary Closing Adjustment.............................. 8
Section 3.02. Final Closing Adjustment.................................... 8
ARTICLE IV
No Representations or Warranties
Section 4.01. No Representations or Warranties............................ 9
Section 4.02. Condition of Assets, Disclaimers............................ 9
ARTICLE V
Certain Agreements of The Company and ECI
Section 5.01. Use of Retained Names....................................... 10
Section 5.02. Severance................................................... 10
Section 5.03. Aircraft Corp. Costs........................................ 10
Section 5.04. Exchange of Indebtedness.................................... 10
ARTICLE VI
Conditions to Closing
Section 6.01. Third-Party Approvals....................................... 10
Section 6.02. Registration Statement and Stockholder Approval............. 10
Section 6.03. Internal Revenue Service Ruling............................. 11
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
Section 6.04. Fairness Opinion........................................... 11
Section 6.05. [Intentionally Omitted].................................... 11
Section 6.06. Liquidation of Vitelcom.................................... 11
Section 6.07. Minimum Borrowing Capacity................................. 11
Section 6.08. No Material Adverse Change................................. 11
Section 6.09. No Litigation.............................................. 11
Section 6.10. Agreements in Full Force................................... 11
Section 6.11. Listing.................................................... 11
Section 6.12. Performance................................................ 11
Section 6.13. ECI Charter................................................ 11
Section 6.14. Boards of Directors and Officers........................... 11
Section 6.15. Non-Competition Agreement.................................. 12
Section 6.16. Indemnity Agreement........................................ 12
Section 6.17. Personal Debts............................................. 12
Section 6.18. Employee Benefits Agreement................................ 12
Section 6.19. Tax Sharing and Indemnification Agreement.................. 12
Section 6.20. Assumed Liabilities........................................ 12
Section 6.21. Technical Assistance Agreement............................. 12
Section 6.22. Recapitalization Agreement Closing......................... 12
Section 6.23. Merger Agreement Closing................................... 12
ARTICLE VII
Closing Date; Closing
Section 7.01. Closing Date; Closing...................................... 12
Section 7.02. Further Assurances......................................... 13
ARTICLE VIII
Miscellaneous Provisions
Section 8.01. Termination................................................ 13
Section 8.02. Entire Agreement........................................... 13
Section 8.03. Governing Law.............................................. 13
Section 8.04. Headings................................................... 13
Section 8.05. Counterparts............................................... 13
Section 8.06. Benefits................................................... 13
Section 8.07. Assignment................................................. 13
Section 8.08. Amendment and Waiver....................................... 13
Section 8.09. Notices.................................................... 14
</TABLE>
SCHEDULES
<TABLE>
<C> <S>
SCHEDULE 1.01A Prosser Designated Employees
SCHEDULE 1.01B Counsel
SCHEDULE 1.01C Undesignated Employees
SCHEDULE 2.02(i) Certain Assets
SCHEDULE 2.05(d) Certain Assumed Liabilities
SCHEDULE 5.02 Employees To Be Terminated
</TABLE>
ii
<PAGE>
EXHIBITS
<TABLE>
<C> <S>
EXHIBIT A Recapitalization Agreement
EXHIBIT B Merger Agreement
EXHIBIT C Form of Technical Assistance Agreement
EXHIBIT D Form of ECI Charter
EXHIBIT E Form of Non-Competition Agreement
EXHIBIT F Form of Indemnity Agreement
EXHIBIT G Form of Employee Benefits Agreement
EXHIBIT H Form of Tax Sharing Agreement
</TABLE>
iii
<PAGE>
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Subscription Agreement") is entered into
as of the 11th day of August, 1997 by and between Atlantic Tele-Network, Inc.,
a Delaware corporation (the "Company"), and Emerging Communications, Inc., a
Delaware corporation ("ECI").
WHEREAS, to eliminate corporate disputes and to maximize the value of the
Company for the benefit of the Company and its stockholders, the Company has
entered into a Principal Terms Agreement dated January 29, 1997 among the
Company and its co-chief executive officers and principal stockholders,
Cornelius B. Prior, Jr. ("Prior") and Jeffrey J. Prosser ("Prosser"), which
contemplates the separation of the businesses and assets of the Company in the
manner set forth herein and in the Recapitalization Agreement (as defined
below) and the Merger Agreement (as defined below); and
WHEREAS, in order to accomplish such separation, subject to the terms and
conditions set forth herein, the Company desires to transfer to ECI all of the
capital stock of its wholly owned subsidiaries, Atlantic Tele-Network, Co., a
Virgin Islands corporation ("ATNCo."), and Atlantic Aircraft, Inc., a Delaware
corporation ("Aircraft Corp."), as well as certain other assets of the Company
as more fully described herein relating to businesses conducted by ATNCo., its
subsidiaries, Virgin Islands Telephone Corporation, a Virgin Islands
corporation ("VITELCO"), Vitelcom Cellular Inc., a Virgin Islands corporation
("VCI"), and Vitelcom, Inc., a Virgin Islands corporation ("Vitelcom" and,
together with ATNCo., Aircraft Corp., VITELCO and VCI, the "Transferred
Subsidiaries"), and Aircraft Corp. in exchange for 10,959,131 shares of common
stock, par value $0.01 per share (the "ECI Common Stock"), of ECI; and
WHEREAS, in order to accomplish such separation, subject to the terms and
conditions set forth herein, in consideration of the transfer to it of the
Assets (as defined herein), ECI desires to issue to the Company 10,959,131
shares of ECI Common Stock and assume the Assumed Liabilities (as defined
herein); and
WHEREAS, the Company, Prior, individually and as Trustee of the 1994 Prior
Charitable Remainder Trust (the "Trust"), and Prosser have entered into a
Recapitalization Agreement dated of even date herewith attached hereto as
Exhibit A (the "Recapitalization Agreement"), pursuant to which, subject to
the terms and conditions set forth therein, (a) the Company has agreed to
repurchase (the "Repurchase") an aggregate of 765,562 shares of common stock,
par value $.01 per share (the "Company Common Stock"), of the Company owned by
Prior and the Trust, and (b) Prosser has agreed to exchange 3,325,000 shares
of Company Common Stock owned by Prosser and certain members of his family for
3,325,000 shares of a new series of common stock of the Company to be
designated Class A Common Stock and Prior has agreed to exchange 2,927,038
shares of Company Common Stock owned by Prior and certain members of his
family for 2,927,038 shares of a new series of common stock of the Company to
be designated Class B Common Stock (the "Recapitalization"); and
WHEREAS, the Company and ATN MergerCo., a Delaware corporation ("Merger
Sub"), have entered into an Agreement and Plan of Merger of even date herewith
attached hereto as Exhibit B (the "Merger Agreement"), pursuant to which,
subject to the terms and conditions contained therein, Merger Sub will merge
with and into the Company, with each share of Company Common Stock being
converted into one share of ECI Common Stock and 0.4 shares of Company Common
Stock, the outstanding shares of Class A Common Stock will be converted into
an aggregate of 5,704,231 shares of ECI Common Stock and the outstanding
shares of Class B Common Stock will be converted into an aggregate of
2,807,040 shares of Company Common Stock (the "Merger"); and
WHEREAS, the consummation of the Closing (as defined herein) is a condition
to the consummation of the Repurchase and Recapitalization pursuant to the
Recapitalization Agreement and a condition to the consummation of the Merger
pursuant to the Merger Agreement;
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained and subject to the terms and conditions hereinafter
set forth, the parties hereto hereby agree as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. As used in this Subscription Agreement, the
following terms shall have the meanings ascribed to them in this Section 1.01
"Aircraft Corp." has the meaning set forth in the recitals hereto.
"Aircraft Receivables" means all indebtedness owing from Aircraft Corp. to
the Company.
"Assets" has the meaning set forth in Section 2.02 hereof.
"Assumed Liabilities" has the meaning set forth in Section 2.05 hereof.
"ATNCo." has the meaning set forth in the recitals hereto.
"Auditor" has the meaning set forth in Section 3.02 hereof.
"Banco Popular Indebtedness" means Indebtedness outstanding under the loan
agreement dated May 29, 1990, as amended February 25, 1993, and as amended
October 6, 1993, between the Company and Banco Popular de Puerto Rico.
"Business Day" shall mean any day, excluding Saturday, Sunday and any day
which shall be in the City of New York a legal holiday or a day on which
banking institutions are authorized or required by law or other governmental
actions to close.
"Cash Equivalents" shall mean (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (b) marketable direct
obligations issued by any State of the United States of America or any local
government or other political subdivision thereof, (c) U.S. dollar denominated
time deposits, certificates of deposit and bankers' acceptances, (d)
commercial paper and variable or fixed rate notes maturing within one year of
the Closing Date and (e) repurchase agreements maturing within one year of the
Closing Date.
"Closing" has the meaning set forth in Section 7.01 hereof.
"Closing Date" has the meaning set forth in Section 7.01 hereof.
"Commission" means the Securities and Exchange Commission.
"Company" has the meaning set forth in the first paragraph hereof.
"Company Common Stock" has the meaning set forth in the recitals hereto.
"Company Projects" has the meaning set forth in Section 2.03 hereof.
"Credits" means, collectively, (a) an amount equal to 50% of the cash and
Cash Equivalents of the Company as of April 30, 1997, (b) an amount equal to
50% of all accounts receivable and other receivables of the Company (other
than (w) the principal amount of any Indebtedness owing to the Company by any
of its Subsidiaries, (x) any receivables identified on Schedule 2.02(i)
hereof, (y) the Aircraft Receivables or (z) any receivables (other than
receivables owing from any Subsidiary of the Company) which remain unpaid on
the Closing Date), including, without limitation, all accrued and unpaid
advisory and management fees, intercompany interest and stockholders'
receivables, as of April 30, 1997, (c) an amount equal to 50% of the current
assets of the Company as of April 30, 1997 (other than those included in or
specifically excluded by
2
<PAGE>
clause (a) or (b) above), (d) an amount equal to 50% of all principal payments
made by Transferred Subsidiaries after December 31, 1996 and on or prior to
April 30, 1997 on Indebtedness owing to the Company, (e) an amount equal to
50% of all dividends paid by Transferred Subsidiaries to the Company after
December 31, 1996 and on or prior to April 30, 1997, (f) an amount equal to
50% of the principal amount of all loans by the Company to, and of all capital
contributions by the Company to, GTT after December 31, 1996 and on or prior
to April 30, 1997, (g) an amount equal to 50% of all costs and expenses
incurred by the Company after December 31, 1996 and on or prior to April 30,
1997 relating to the Company Projects or any potential acquisitions (including
any which may have been abandoned after December 31, 1996) to be consummated
by the Company or any of its Subsidiaries (other than the Transferred
Subsidiaries), (h) an amount equal to 100% of all principal payments made by
the Transferred Subsidiaries after April 30, 1997 and on or prior to the
Closing Date on Indebtedness (other than with respect to the Aircraft
Receivables) owing to the Company, (i) an amount equal to 100% of all
dividends paid by Transferred Subsidiaries to the Company after April 30, 1997
and on or prior to the Closing Date, (j) an amount equal to 100% of all
payments of interest accruing after April 30, 1997 and made by Transferred
Subsidiaries to the Company (other than with respect to the Aircraft
Receivables) after April 30, 1997 and on or prior to the Closing Date on
Indebtedness owing to the Company, (k) an amount equal to 50% of the book
value as of April 30, 1997 of the furniture, fixtures, equipment and leasehold
improvements at the St. Thomas Office, (l) an amount equal to 100% of all
payments received by the Company after April 30, 1997 on any receivables
identified on Schedule 2.02(i) hereof and (m) an amount equal to 100% of the
principal amount of and accrued interest on the Indebtedness listed in
Schedule 2.05(d) as of the Closing Date. Any amounts comprising the Credits
which are denominated in a currency other than U.S. dollars shall be converted
into a U.S. dollar amount using the applicable exchange rate in effect as of
the fifth Business Day prior to the Closing Date, in the case of the Estimated
Statement, and as of the Closing Date, in the case of the Final Statement, as
published in The Wall Street Journal on the next succeeding Business Day.
"Debits" means, collectively, (a) an amount equal to 50% of the Indebtedness
(including Banco Popular Indebtedness) of the Company owing to banks or listed
on Schedule 2.05(d) attached hereto or as of April 30, 1997, (b) an amount
equal to 50% of all other current liabilities of the Company as of April 30,
1997 (other than Excluded Liabilities), (c) an amount equal to 50% of the
total severance payments with respect to the persons set forth on Schedule
5.02 attached hereto, (d) an amount equal to 50% of all principal payments
made by GTT on Indebtedness owing to the Company after December 31, 1996 and
on or prior to April 30, 1997, (e) an amount equal to 50% of all dividends
paid by GTT to the Company after December 31, 1996 and on or prior to April
30, 1997, (f) an amount equal to 50% of the principal amount of all loans by
the Company to, and all capital contributions by the Company to, Transferred
Subsidiaries (other than Aircraft Receivables) after December 31, 1996 and on
or prior to April 30, 1997, (g) an amount equal to 50% of all costs and
expenses incurred by the Company after December 31, 1996 and on or prior to
April 30, 1997 relating to the project for the privatization of the telephone
company for the Republic of Congo or any potential acquisitions (including any
which may have been abandoned after December 31, 1996) to be consummated by
ECI or any of the Transferred Subsidiaries, (h) an amount equal to 100% of the
principal amount of all loans made by the Company to, and of all capital
contributions by the Company to, Transferred Subsidiaries (including Aircraft
Receivables, unless the proceeds relating thereto were used by Aircraft Corp.
to repay third-party Indebtedness) after April 30, 1997 and on or prior to the
Closing Date, (i) an amount equal to 100% of all interest accrued as of April
30, 1997 which has not been paid to the Company on or prior to the Closing
Date on Indebtedness owing by Transferred Subsidiaries (other than with
respect to the Aircraft Receivables) to the Company, (j) an amount equal to
100% of all costs and expenses incurred by the Company after April 30, 1997
and on or prior to the Closing Date relating to the project for the
privatization of the telephone company for the Republic of Congo or any
potential acquisitions (including any which may have been abandoned after
December 31, 1996) to be consummated by ECI or any of the Transferred
Subsidiaries, (k) an amount equal to 100% of all costs and expenses incurred
by the Company after April 30, 1997 and on or prior to the Closing Date
relating to furniture, fixtures, equipment and leasehold improvements at, or
otherwise pertaining to, the St. Croix Office, (l) an amount equal to 50% of
the book value as of April 30, 1997 of the furniture, fixtures, equipment and
leasehold improvements at the St. Croix Office, (m) an amount equal to 100% of
the compensation and other expenses incurred by the Company after April 30,
1997 and on or prior to the Closing Date relating to the employees and
consultants identified on
3
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Schedule 1.01A attached hereto, (n) an amount equal to 50% of all fees and
expenses incurred by Prior, Prosser, the Company, ECI and their respective
Subsidiaries relating to the Transactions and all agreements, documents and
proceedings in connection therewith, including, without limitation, all fees
and expenses of each counsel set forth on Schedule 1.01B attached hereto,
accountants and investment bankers, filing fees with the Commission and state
securities agencies, stock exchange listing fees, transfer agent fees,
transfer taxes and filing fees with the State of Delaware, it being expressly
understood and agreed that the payment of all such fees and expenses (but, as
to counsel fees and expenses, limited to the counsel named in Schedule 1.01B)
shall be the obligation of the Company, (o) an amount equal to 50% of the
compensation and other expenses incurred by the Company after April 30, 1997
and on or prior to the Closing Date relating to the employees identified on
Schedule 1.01C attached hereto, (p) an amount equal to 50% of (i) the "blue
book" values of the two aircraft owned by Aircraft Corp. as of the latest
"blue book" available to the parties on the third Business Day prior to the
Closing Date less (ii) the amount of all Indebtedness and accrued interest
owing by Aircraft Corp. to third parties as of the Closing Date, (q) an amount
equal to 50% of the carrying value as of April 30, 1997 of the assets
identified on Schedule 2.02(i) hereof, (r) an amount equal to the provision
for Income Tax expense of the Company which would be accrued on a hypothetical
statement of operations of the Company for the period after April 30, 1997 to
and including the Closing Date which statement of operations includes as
revenues or gross income only dividends paid by the Transferred Subsidiaries
to the Company during such period and interest accrued during such period on
Indebtedness of the Transferred Subsidiaries to the Company and includes as
expense only the expenses charged to ECI under clauses (c), (j), (k), (m),
(n), (o) and (s) of this definition of "Debits" (and only to the extent such
charges represent expenses which are deductible for Income Tax purposes), and
(s) an amount equal to 50% of all expenses incurred by the Company after April
30, 1997 and on or prior to the Closing Date (including interest accrued on
Indebtedness listed on Schedule 2.05(d)) to the extent such expenses are of a
type which do not constitute a Credit hereunder or a Debit pursuant to any
other clause of this definition of "Debits." Any amount comprising the Debits
which are denominated in a currency other than U.S. dollars shall be converted
into a U.S. dollar amount using the applicable exchange rate in effect as of
the fifth Business Day prior to the Closing Date, in the case of the Estimated
Statement, and as of the Closing Date, in the case of the Final Statement, as
published in The Wall Street Journal on the next succeeding Business Day.
"ECI" has the meaning set forth in the first paragraph hereof.
"ECI Common Stock" has the meaning set forth in the recitals hereto.
"Estimated Statement" has the meaning set forth in Section 3.01 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" has the meaning set forth in Section 2.03.
"Excluded Liabilities" has the meaning set forth in Section 2.06.
"Final Statement" has the meaning set forth in Section 3.02.
"Goods" has the meaning set forth in the Uniform Commercial Code of the
State of New York.
"GTT" has the meaning set forth in Section 2.03.
"Income Tax" has the meaning set forth in the Tax Sharing Agreement.
"Indebtedness" of any person shall mean, without duplication, (a) all
indebtedness of such person for borrowed money, (b) the deferred purchase
price of assets or services which in accordance with generally accepted
accounting principles would be shown on the liability side of the balance
sheet of such person, (c) the face amount of all letters of credit issued for
the account of such person and, without duplication, all drafts drawn
thereunder and (d) all Indebtedness of a second person secured by any lien on
any property owned by such first person, whether or not such Indebtedness has
been assumed by such first person.
"Materials" has the meaning set forth in Section 5.01 hereof.
4
<PAGE>
"Merger" has the meaning set forth in the recitals hereto.
"Merger Agreement" has the meaning set forth in the recitals hereto.
"Prior" has the meaning set forth in the recitals hereto.
"Prosser" has the meaning set forth in the recitals hereto.
"Recapitalization" has the meaning set forth in the recitals hereto.
"Recapitalization Agreement" has the meaning set forth in the recitals
hereto.
"Repurchase" has the meaning set forth in the recitals hereto.
"Retained Indebtedness" has the meaning set forth in Section 2.02.
"Retained Names" has the meaning set forth in Section 5.01 hereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" has the meaning set forth in Section 2.01 hereof.
"Special Meeting" has the meaning set forth in the Merger Agreement.
"St. Croix Office" means the office of the Company located at Chase
Financial Center, Orange Grove, Christiansted, St. Croix, U.S. Virgin Islands
00821.
"St. Croix Office Lease" means the current lease between Chase Manhattan
Bank and VITELCO for the St. Croix Office, any and all renewals, extensions or
amendments thereof and any new lease for the St. Croix Office entered into on
or prior to the Closing Date.
"St. Thomas Office" means the office of the Company located at 19 Estate
Thomas, Havensite, St. Thomas, U.S. Virgin Islands 00802.
"St. Thomas Office Lease" means the lease agreement dated October 1, 1992,
as amended July 22, 1993, between the Company and St. Thomas Liquor Co., Ltd.
for the St. Thomas Office.
"Subscription Agreement" has the meaning set forth in the first paragraph
hereof.
"Subsidiary" shall mean, of any person at any time,
(a) any corporation of which a majority (by number of shares or number of
votes) of any class of outstanding capital stock normally entitled to vote
for the election of one or more directors (regardless of any contingency
which does or may suspend or dilute the voting rights of such class) is at
such time owned directly or indirectly, beneficially or of record, by such
person or one or more Subsidiaries of such person;
(b) any trust of which a majority of the beneficial interest is at such
time owned directly or indirectly, beneficially or of record, by such
person or one or more Subsidiaries of such person; and
(c) any partnership, joint venture or other entity of which ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at such time
owned directly or indirectly, beneficially or of record, by, or which is
otherwise controlled directly, indirectly or through one or more
intermediaries by, such person or one or more Subsidiaries of such person.
"Tax" or "Taxes" means any income, gross income, gross receipts, profits,
capital stock, franchise, withholding, payroll, social security, workers
compensation, unemployment, disability, property, ad valorem, stamp, excise,
severance, occupation, service, sales, use, license, lease, transfer, import,
export, value added,
5
<PAGE>
alternative minimum, estimated or other similar tax (including any fee,
assessment or other charge in the nature of or in lieu of any tax) imposed by
any governmental entity or political subdivision thereof, and any interest,
penalties, additions to tax or additional amounts in respect of the foregoing.
"Transactions" has the meaning set forth in Section 6.02 hereof.
"Transferred Subsidiaries" has the meaning set forth in the recitals hereto.
"Trust" has the meaning set forth in the recitals hereto.
"VCI" has the meaning set forth in the recitals hereto.
"VITELCO" has the meaning set forth in the recitals hereto.
"Vitelcom" has the meaning set forth in the recitals hereto.
Section 1.02. Rules of Construction. Unless the context otherwise requires:
(a) a capitalized term used herein has the meaning ascribed to such term;
(b) "or" is not exclusive;
(c) words in the singular include the plural, and words in the plural
include the singular; and
(d) "herein," "hereof" and other words of similar import refer to this
Subscription Agreement as a whole and not to any particular Article,
Section or other subdivision.
ARTICLE II
SUBSCRIPTION FOR AND ACQUISITION OF THE SHARES
Section 2.01. Subscription for the Shares. The Company hereby subscribes for
and, subject to the terms and conditions contained herein, agrees to acquire
at the Closing 10,959,131 shares of ECI Common Stock (the "Shares").
Section 2.02. Acquisition of the Shares. In consideration of the issuance of
the Shares by ECI and the performance of its other obligations hereunder,
subject to the terms and conditions contained herein, the Company agrees to
transfer, convey, assign and deliver, or cause to be transferred, conveyed,
assigned and delivered, at the Closing to ECI the following assets (which are
collectively referred to herein as the "Assets"):
(a) all of the issued and outstanding capital stock of ATNCo.;
(b) all of the issued and outstanding capital stock of Aircraft Corp.;
(c) all Indebtedness of each Transferred Subsidiary owing to the Company
except the Subordinated Demand Note of ATNCo. payable to the order of the
Company, which had an unpaid principal amount of $22,031,586 at April 30,
1997 (the "Retained Indebtedness");
(d) all rights of the Company under the St. Croix Office Lease;
(e) all equipment, furniture, fixtures and leasehold improvements of the
Company located at the St. Croix Office;
(f) all rights of the Company under any leases of equipment located at
the St. Croix Office;
(g) all rights of the Company and GTT (including any capitalized costs
relating thereto) relating to the project for the privatization of the
telephone company for the Republic of Congo;
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(h) all books, records and other data and papers held by the Company at
the Closing relating to the operation of the businesses of the Transferred
Subsidiaries;
(i) all of the right, title and interest of the Company in the assets set
forth on Schedule 2.02(i) attached hereto; and
(j) 50% of all receivables of the Company as of April 30, 1997 which
remain unpaid as of the Closing Date (other than Indebtedness owing to the
Company by any of its Subsidiaries and any receivables identified on
Schedule 2.02(i)).
Section 2.03. Excluded Assets. For the avoidance of doubt, each of the
parties hereto acknowledges and agrees that there shall not be included in
Assets to be transferred, conveyed, assigned and delivered to ECI at the
Closing any of the following assets (which are collectively referred to herein
as the "Excluded Assets"):
(a) any of the capital stock of Guyana Telephone & Telegraph Company
Ltd., a Guyana corporation ("GTT");
(b) any Indebtedness of GTT owing to the Company;
(c) any rights of the Company under the St. Thomas Office Lease;
(d) any equipment, furniture, fixtures and leasehold improvements of the
Company located at the St. Thomas Offices;
(e) any rights of the Company under any leases of equipment located at
the St. Thomas Office;
(f) any rights of the Company or GTT (including any capitalized costs
relating thereto) relating to the projects for the privatization of the
Suriname telephone company, the purchase of the St. Martin cellular
operation or the long distance telephone opportunity in Jamaica (the
"Company Projects"); and
(g) any rights of the Company under any advisory or management agreement
between GTT and the Company.
Section 2.04. Issuance of the Shares. At the Closing, subject to the terms
and conditions contained herein, ECI agrees to issue and deliver the Shares to
the Company.
Section 2.05. Assumption of Liabilities. In consideration of the transfer,
conveyance, assignment and delivery of the Assets and the performance by the
Company of its other obligations hereunder, subject to the terms and
conditions contained herein, ECI agrees to assume at the Closing in accordance
with their respective terms the following liabilities (which are collectively
referred to herein as the "Assumed Liabilities"):
(a) all obligations of the Company under the St. Croix Office Lease;
(b) all obligations of the Company under all of the leases of equipment
located at the St. Croix Office and all other leases of equipment located
at the St. Croix Office entered into by the Company after the date of this
Subscription Agreement and prior to the Closing;
(c) all obligations of the Company arising out of or relating to the
Transferred Subsidiaries and the project for the privatization of the
telephone company for the Republic of Congo;
(d) the obligations of the Company set forth on Schedule 2.05(d);
(e) certain Tax liabilities of the Company as more particularly described
in the Tax Sharing and Indemnification Agreement; and
(f) except as otherwise provided in the Indemnity Agreement, one-half of
all liabilities and obligations of the Company, whether known or unknown,
arising out of events or acts or omissions occurring at or prior to the
Closing, except for (i) any Tax liabilities, (ii) any liabilities or
obligations that are taken into account in clauses (b) and (c) of the
definition of "Debits" for purposes of calculating the Final Closing
Adjustment and (iii) any liabilities and obligations that are Assumed
Liabilities pursuant to clauses (a)-(d) of this Section 2.05 or Excluded
Liabilities pursuant to clauses (a)-(c) of Section 2.06.
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Section 2.06. Excluded Liabilities. For the avoidance of doubt, each of the
parties hereto acknowledges and agrees that ECI does not hereby assume or
agree to assume any of the following obligations or liabilities (which are
collectively referred to herein as the "Excluded Liabilities"):
(a) any obligations of the Company under the St. Thomas Office Lease;
(b) any obligations of the Company under the leases of equipment located
at the St. Thomas Office; and
(c) any liability or obligation of the Company, whether known or unknown,
or matured or contingent, arising out of or relating to GTT or the Company
Projects.
Section 2.07. Restricted Assets. In the event that any Asset is not
assignable or transferable to ECI at the Closing by its terms or under
applicable law (each, a "Restricted Asset"), the Company shall use all
reasonable efforts, and ECI shall cooperate reasonably with the Company, to
promptly obtain the consents and waivers necessary to cause to be assigned or
transferred to ECI such Restricted Asset. After the Closing and continuing for
the duration of the useful life of each Restricted Asset, the Company shall
use reasonable efforts to provide ECI with the benefits of such Restricted
Asset and enforce at the request of ECI, or allow ECI to enforce, any rights
of the Company under such Restricted Asset; provided that the reasonable costs
and expenses of the Company incurred at ECI's request with respect to any such
enforcement shall be reimbursed by ECI.
Section 2.08. Access to Information. Each of the parties shall give to the
other reasonable access to information necessary to consummate the
transactions contemplated by this Subscription Agreement and shall deliver at
its expense all records relating to businesses and operations of the other
party and its Subsidiaries which may inadvertently remain in its possession
after the Closing. Each of the parties shall retain records relating to the
businesses and operations of the other party and its Subsidiaries in its
possession for a period of five years after the Closing Date.
ARTICLE III
CLOSING ADJUSTMENT
Section 3.01. Preliminary Closing Adjustment.
(a) On the third Business Day prior to the Closing Date, the Company
shall deliver to ECI an estimated statement of the Debits and the Credits
(the "Estimated Statement"), which Estimated Statement shall be in form and
substance reasonably satisfactory to ECI. The difference between the Debits
and the Credits shown on the Estimated Statement is herein called the
"Closing Date Adjustment." If the Debits exceed the Credits the Closing
Date Adjustment shall be a positive amount representing the sum resulting
from the Closing Date Adjustment due by ECI to the Company. If the Credits
exceed the Debits the Closing Date Adjustment shall be a negative amount
representing the sum resulting from the Closing Date Adjustment due by the
Company to ECI.
(b) ECI shall cause ATNCo to pay on the Closing Date, by wire transfer of
immediately available funds, as a payment of the Retained Indebtedness,
$17.4 million increased by the sum of the Closing Date Adjustment should
such adjustment be a positive amount or decreased by the Closing Date
Adjustment should such amount be a negative amount. If the amount of the
payment to be made by ATNCo. under this Section 3.01 exceeds the principal
amount of the Retained Indebtedness, such excess amount shall be paid by
ECI to the Company.
Section 3.02. Final Closing Adjustment.
(a) As promptly as practicable after the Closing Date, the Company shall
deliver to ECI a statement of Debits and Credits as of the Closing Date
(the "Closing Date Statement"). The Company and ECI shall engage the Omaha,
Nebraska office of Deloitte & Touche LLP (the "Auditor") to perform an
audit of the Debits and Credits shown on the Closing Date Statement. The
Auditor shall, within 60 days after the
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Closing Date, deliver to the parties a report of the calculation of the
Debits and the Credits (the "Final Statement"). The Final Statement shall
be conclusive and binding upon the parties, absent fraud or manifest error.
Each of the parties shall give the Auditor full access to its books,
records, facilities and employees in connection with the Auditor's audit of
the Final Statement. The fees and disbursements of the Auditor shall be
paid equally by the Company and ECI. The amount by which the amount of the
Debits shown on the Final Statement exceeds the amount of the Credits shown
on the Final Statement is herein called the "Final Closing Adjustment." If
the amount of Credits exceeds the amount of Debits, the Final Closing
Adjustment shall be a negative amount.
(b) If the Final Closing Adjustment exceeds the amount of the Closing
Date Adjustment, then within three Business Days after receipt of the Final
Statement by ECI, ECI shall cause ATNCo. to pay to the Company on account
of the principal amount of the Retained Indebtedness by wire transfer of
immediately available funds to an account specified by the Company therefor
an amount in cash in U.S. dollars equal to the amount by which the Final
Closing Adjustment exceeds the Closing Date Adjustment. If the amount of
the payment to be made by ATNCo. under this clause (b) exceeds the
remaining principal amount of the Retained Indebtedness, such excess amount
shall be paid by ECI to the Company.
(c) If the Final Closing Adjustment is less than the Closing Date
Adjustment, then within three Business Days after receipt of the Final
Statement by the Company, the Company shall pay to ECI by wire transfer of
immediately available funds to an account specified by ECI therefor an
amount in cash in U.S. dollars equal to the amount by which the Final
Closing Adjustment is less than the amount of the Closing Date Adjustment.
(d) For the avoidance of doubt, it is hereby acknowledged and agreed that
a positive amount is always larger than any negative amount (e.g. $10 is
$110 larger than -$100), that a negative amount is always less than a
positive amount (e.g. -$100 is $110 less than $10), and that a larger
negative number is "less than" a smaller negative number (e.g. -$110 is $10
less than -$100).
(e) Immediately following the payment specified in clause (b) or (c) of
this Section 3.02, the Company shall note on the promissory note evidencing
the Retained Indebtedness the aggregate amount of the payments, if any,
received by it with respect to the Retained Indebtedness pursuant to
Section 3.01 and this Section 3.02 and assign and deliver the Retained
Indebtedness to ECI.
ARTICLE IV
NO REPRESENTATIONS OR WARRANTIES;
CONDITION OF ASSETS, DISCLAIMERS
Section 4.01. No Representations or Warranties. Each of the parties
understands and agrees that no party is making, in this Subscription Agreement
or in any other agreement or document entered into in connection with the
Transactions, representations or warranties to the other in any way as to the
business or operations of the Company prior to or after the Closing or as to
the business or operations of ECI after the Closing, or as to any consents or
approvals required in connection therewith.
Section 4.02. Condition of Assets, Disclaimers. All Goods to be conveyed
pursuant to this Subscription Agreement are expressly agreed to be conveyed
"AS IS" and "WITH ALL FAULTS." All of the Assets to be transferred and
assigned to ECI pursuant to the provisions of this Subscription Agreement
shall be transferred and assigned to ECI as is, where is, in the condition
thereof and subject to the state of title thereto, the rights of any parties
in possession, and the right of ownership of others therein, and are subject
to all applicable laws, rules, regulations, ordinances, licenses, permits,
franchises, judgments, orders and other governmental actions, whether now in
effect or hereafter taken, and without representations or warranties of any
kind by the Company or any person acting or purporting to act on its behalf.
The Company makes no warranty or representation, express or implied, as to the
title, design, condition, value, operation, workmanship, merchantibility or
suitability for a particular purpose of the Assets, or any portion thereof, or
any other warranty or representation, express or implied, of any kind
whatsoever with respect to the Assets or any portion thereof.
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ARTICLE V
CERTAIN AGREEMENTS OF THE COMPANY AND ECI
Section 5.01. Use of Retained Names. After the Closing, ECI shall not, and
shall cause its Subsidiaries not to, put into use any products, signs,
purchase orders, sales orders, labels, letterheads, or other materials
(collectively, "Materials") not in existence on the Closing Date that bear the
name "Atlantic Tele-Network, Inc." or "ATN" (the "Retained Names"). After the
Closing, ECI and its Subsidiaries shall be entitled to use any Materials in
existence as of the Closing that bear the Retained Names for a period not
exceeding 30 days.
Section 5.02. Severance. Prior to the Closing, the Company shall terminate
the employment of each of its employees identified on Schedule 5.02 attached
hereto.
Section 5.03. Aircraft Corp. Costs. Effective May 1, 1997, the Transferred
Subsidiaries, the project for the privatization of the telephone company for
the Republic of Congo, the Company Projects, and GTT shall be charged for use
of Aircraft Corp.'s jet aircraft only in an amount equal to the cost incident
to such use computed in the same manner and on the same basis as Prosser and
Prior have heretofore been charged for personal use of such aircraft, and all
remaining expenses of Aircraft Corp. with respect to the jet aircraft for the
period after April 30, 1997 and on or prior to the Closing Date shall be
charged to the Company as an expense to be allocated 50% to ECI pursuant to
clause(s) of the definition of "Debits" in this Subscription Agreement.
Section 5.04. Exchange of Indebtedness. Upon receipt of Indebtedness of
Transferred Subsidiaries pursuant to Section 2.02(c), ECI shall immediately
exchange any such Indebtedness for a promissory note with a term of at least
ten years at a variable rate of interest at least equal to the variable rate
of interest under the senior credit facility between Atlantic Tele-Network,
Co. and Rural Telephone Finance Cooperative and under which the obligor has
the right to prepay such note at any time without premium or penalty.
ARTICLE VI
CONDITIONS TO CLOSING
The obligations of the parties to consummate the purchase and sale of the
Shares, the assumption of the Assumed Liabilities and the other transactions
to be consummated by the parties hereto at the Closing shall be subject to the
satisfaction of the following conditions on or prior to the Closing Date:
Section 6.01. Third-Party Approvals. All consents, approvals,
authorizations, permits and orders with respect to the transactions
contemplated by this Subscription Agreement, the Recapitalization Agreement
and the Merger Agreement and the other agreements to be entered into pursuant
hereto and thereto required from any person, entity or court or governmental
agency, authority or instrumentality, federal, state or local, having or
asserting rights against or jurisdictions over the Company, ECI, or such
transactions (including, without limitation, from the Rural Telephone Finance
Corporation, the Rural Utilities Service, and Northern Telecom International
Finance B.V.) shall have been obtained and be valid and in full force and
effect.
Section 6.02. Registration Statement and Stockholder Approval. The
Registration Statement registering the Shares to be issued to stockholders of
the Company pursuant to the Merger Agreement under the Securities Act shall
have become effective in accordance with the provisions of the Securities Act;
no stop order suspending the effectiveness of such Registration Statement
shall have been issued by the Commission and remain in effect; all necessary
state securities or blue sky authorizations shall have been received. The
approval and adoption of this Subscription Agreement, the Recapitalization
Agreement, the Merger Agreement and the other agreements to be entered into
pursuant hereto and thereto and the transactions contemplated hereby and
thereby (the "Transactions"), by a majority of the outstanding shares of
Company Common Stock shall have been obtained.
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Section 6.03. Internal Revenue Service Ruling. The Company shall have
received rulings from the Internal Revenue Service reasonably acceptable to
the Company and ECI, which rulings shall be in full force and effect as of the
Closing Date, to the effect that:
(i) the transactions contemplated by the Subscription Agreement will be a
tax-free reorganization as described in Section 368(a)(1)(D) of the Code;
and
(ii) the distribution of ECI Common Stock to the holders of Company
Common Stock and the holders of the Class A Common Stock pursuant to the
Merger Agreement will be tax-free for federal income tax purposes to the
Company under Section 355(c) or 361(c) of the Code and to the holders of
Company Common Stock and the holders of the Class A Common Stock under
Section 355(a) of the Code.
Section 6.04. Fairness Opinion. The Board of Directors of the Company shall
have received an opinion from Prudential Securities Inc. dated July 7, 1997
and reaffirmed within five Business Days prior to the date a definitive proxy
statement is mailed to the holders of Company Common Stock under the Exchange
Act to the effect that the Transactions are fair from a financial point of
view to the public stockholders of the Company.
Section 6.05. [Intentionally Omitted]
Section 6.06. Liquidation of Vitelcom. Vitelcom shall be liquidated or
merged into ATN Co. and the business of Vitelcom shall be continued by ATN
Co., which may continue such business as a separate division of ATN Co. but
not as a separate corporate Subsidiary.
Section 6.07. Minimum Borrowing Capacity. Each of the Company and ECI shall
have minimum available borrowing capacity with reputable lenders or available
cash on hand necessary to make and, in ECI's case, to cause ATNCo. to make the
payments expected to be required under Article III hereof.
Section 6.08. No Material Adverse Change. Since the date of this Agreement,
there shall have been no material adverse change in the business to be
conducted by either (a) the Company and its Subsidiaries after the Closing or
(b) ECI and its Subsidiaries after the Closing.
Section 6.09. No Litigation. No action, suit, investigation or other
proceeding shall be pending or threatened before any arbitrator, court or
governmental agency which, in the opinion of at least one-half of the members
of the Board of Directors of either the Company or ECI, presents a substantial
risk of the restriction or prohibition of any material component of the
Transactions, or obtaining material damages or other relief in connection
therewith.
Section 6.10. Agreements in Full Force. Each of the Merger Agreement and the
Recapitalization Agreement shall be in full force and effect and no party
thereto shall be in material breach of any of its obligations thereunder.
Section 6.11. Listing. The Shares issuable in the Merger shall have been
authorized for listing on the American Stock Exchange subject to a final
notice of issuance. The outstanding Common Stock of the Company shall be
listed on the American Stock Exchange, and no proceedings shall be pending or
threatened to delist such stock from such Exchange.
Section 6.12. Performance. Each of the parties shall have performed and
complied in all material respects with all obligations and conditions required
by this Subscription Agreement to be performed or complied with by it at or
prior to the Closing and such party shall furnish to the other an officer's
certificate to evidence such performance and compliance.
Section 6.13. ECI Charter. ECI shall have adopted and filed with the
Secretary of State of Delaware a Restated Certificate of Incorporation
substantially in the form of Exhibit D attached hereto.
Section 6.14. Boards of Directors and Officers. The Board of Directors and
officers of ECI and each Transferred Subsidiary shall consist of those persons
designated in writing by Prosser to the Company on the
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Business Day preceding the Closing Date. The Board of Directors and officers
of the Company and GTT shall consist of those persons designated in writing by
Prior to the Company on the business day preceding the Closing Date.
Section 6.15. Non-Competition Agreement. ECI and Prosser shall have entered
into a Non-Competition Agreement substantially in the form of Exhibit E
attached hereto, and such agreement shall be in full force and effect and no
party thereto shall be in material default of any of its obligations
thereunder.
Section 6.16. Indemnity Agreement. The Company, ECI, Prior and Prosser shall
have entered into an Indemnity Agreement substantially in the form of Exhibit
F attached hereto, and such agreement shall be in full force and effect and no
party thereto shall be in material default of any of its obligations
thereunder.
Section 6.17. Personal Debts. Each of Prior and Prosser shall have repaid
all personal debts owing to the Company or any of its Subsidiaries (including
any Transferred Subsidiaries); and Prior shall have caused the repayment of
all amounts owing by Prior's private wireless cable television business to
Vitelcom as of the Closing Date.
Section 6.18. Employee Benefits Agreement. The Company and ECI shall have
entered into an Employee Benefits Agreement substantially in the form of
Exhibit G attached hereto, and such agreement shall be in full force and
effect and no party thereto shall be in material default of any of its
obligations thereunder.
Section 6.19. Tax Sharing and Indemnification Agreement. The Company and ECI
shall have entered into a Tax Sharing and Indemnification Agreement
substantially in the form of Exhibit H attached hereto (the "Tax Sharing
Agreement"), and such agreement shall be in full force and effect and no party
thereto shall be in material default of any of its obligations thereunder.
Section 6.20. Assumed Liabilities. ECI shall have assumed all obligations of
the Company with respect to the Assumed Liabilities outstanding as of the
Closing Date.
Section 6.21. Technical Assistance Agreement. The Company, ATNCo., VITELCO
and VCI shall have entered into a Technical Assistance Agreement substantially
in the form of Exhibit C attached hereto (the "Technical Services Agreement"),
and such agreement shall be in full force and effect and no party thereto
shall be in material default of any of its obligations thereunder.
Section 6.22. Recapitalization Agreement Closing. Each of the conditions to
the closing under the Recapitalization Agreement (the "Recapitalization
Agreement Closing") shall have been satisfied or, with the consent of each of
the parties hereto waived; and all parties thereto shall appear ready, willing
and able to consummate the transactions therein provided to be consummated at
the Recapitalization Agreement Closing.
Section 6.23. Merger Agreement Closing. Each of the conditions to the
closing under the Merger Agreement (the "Merger Agreement Closing") shall have
been satisfied or, with the consent of each of the parties hereto waived; and
all parties thereto shall appear ready, willing and able to consummate the
transactions therein provided to be consummated at the Merger Agreement
Closing.
ARTICLE VII
CLOSING DATE; CLOSING
Section 7.01. Closing Date; Closing. The closing of the acquisition and
issuance of the Shares hereunder (the "Closing") shall take place on the same
Business Day as the Recapitalization Agreement Closing and the Merger
Agreement Closing and shall be held as soon as reasonably practicable after
satisfaction or waiver by the parties hereto of the conditions set forth in
Article VI hereof. The date on which the Closing occurs is referred to herein
as the "Closing Date." The Closing shall take place at the offices of Cahill
Gordon &
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Reindel, 80 Pine Street, New York, New York 10005. At the Closing, (i) ECI
shall issue the Shares to the Company registered in such names and
denominations as the Company shall request, (ii) the transfer, conveyance,
assignment and delivery of the Assets shall be effected by the delivery by the
Company of such deeds, bills of sale, endorsements, assignments, certificates
or other instruments as ECI shall reasonably request, (iii) the assumption of
the Assumed Liabilities shall be effected by the delivery by ECI of such
instruments of assumption as the Company shall reasonably request and (iv) ECI
shall have consummated or caused ATNCo. to have consummated the wire transfer
contemplated by Section 3.01 hereof.
Section 7.02. Further Assurances. Each of the parties agrees that after the
Closing, upon reasonable request of the other party, it will do, execute,
deliver and acknowledge, and will cause to be done, executed, delivered and
acknowledged, all such further acts, deeds, certificates, assignments,
assumptions, transfers, conveyances, powers of attorney and other documents as
may be reasonably required to consummate the transactions contemplated hereby.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.01. Termination. This Subscription Agreement shall terminate upon
the termination of the Recapitalization Agreement or the Merger Agreement. In
addition, this Subscription Agreement may be terminated at any time prior to
the Closing by the Board of Directors of the Company and the Board of
Directors of ECI without the authorization or consent of the Company's or
ECI's stockholders. In the event of any such termination, neither party shall
have any liability of any kind to the other party.
Section 8.02. Entire Agreement. This Subscription Agreement, together with
all other written agreements which may be entered into between the parties in
connection herewith and the transactions contemplated hereby and all other
documents and instruments delivered in connection herewith and therewith and
the transactions contemplated hereby and thereby, set forth the full and
complete understanding of the parties hereto with respect to the transactions
contemplated hereby.
Section 8.03. Governing Law. This Subscription Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
reference to the conflict of laws rules thereof.
Section 8.04. Headings. The headings in this Subscription Agreement are
intended solely for convenience of reference and shall be given no effect in
the interpretation of this Subscription Agreement.
Section 8.05. Counterparts. This Subscription Agreement may be executed in
two counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
Section 8.06. Benefits. This Subscription Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns, and no other person will have any right or obligation
hereunder.
Section 8.07. Assignment. Neither this Subscription Agreement nor any right
hereunder may be assigned by the parties hereto without the prior written
consent of the other party. Subject to the foregoing, this Subscription
Agreement shall be binding upon and inure to the benefit of the successors,
heirs, representatives and assigns of each party hereto.
Section 8.08. Amendment and Waiver. This Subscription Agreement may be
amended only by an instrument in writing signed on behalf of each of the
parties hereto. Any term, condition or provision of this Subscription
Agreement may be waived (if in writing) at any time by the party or each of
the parties entitled to the benefits thereof.
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Section 8.09. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
given if delivered by hand, or when sent by telex or telecopier (with receipt
confirmed) or by registered mail, return receipt requested, addressed as
follows (or to such other address as a party may designate by notice to the
other):
(a) If to the Company:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
with copies to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
(b) If to ECI:
Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-7700
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
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IN WITNESS WHEREOF, each of the Company and ECI has caused this Subscription
Agreement to be executed on the date first written above.
Atlantic Tele-Network, Inc.
By: /s/ Cornelius B. Prior
__________________________________
Name: Cornelius B. Prior
Title:Co-Chief Executive Officer
By: /s/ Jeffrey J. Prosser
__________________________________
Name: Jeffrey J. Prosser
Title:Co-Chief Executive Officer
Emerging Communications, Inc.
By: /s/ Jeffrey J. Prosser
__________________________________
Name: Jeffrey J. Prosser
Title:Chief Executive Officer
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SCHEDULE 1.01A
PROSSER DESIGNATED EMPLOYEES AND CONSULTANTS
James J. Heying
Sharon Smalls
Edwin Crouch
Steve Ross
Deseree Rodriquez
Liz Goggins
Eling Joseph
Wilhelm Samuel
David Stuedell
Gary Fisher
Kevin Cullwood
Ronald Sanders
James Dishman
Sir Shridath S. Ramphal
Paul Singer
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SCHEDULE 1.01B
COUNSEL
Cahill Gordon & Reindel
Fried, Frank, Harris, Shriver & Jacobson
Raynor, Rensch & Pfeiffer
Richards, Layton & Finger
Brown & Wood LLP
Kelley Drye & Warren
Wiley, Rein & Fielding
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SCHEDULE 1.01C
UNDESIGNATED EMPLOYEES
Pacita Donovan
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SCHEDULE 2.02(I)
CERTAIN ASSETS
- --Any loans or advances to or other receivables from Jeffrey J. Prosser or any
of the persons listed on Schedule 1.01A hereof
- --AS400 Computer currently located at the premises of Vitelco
- --Key-man life insurance policies on the life of Jeffrey J. Prosser, including
pre-paid premiums relating thereto
- --Rent deposits relating to the St. Croix Office or leases relating to
equipment located at the St. Croix Office
- --Any other prepaid expenses, deposits or similar assets of the Company
relating to assets to be transferred to ECI under this Agreement, relating to
assets, liabilities, or operations of any of the Transferred Subsidiaries or
relating to Jeffrey J. Prosser of any of the person listed on Schedule 1.01A
hereof.
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SCHEDULE 2.05(D)
CERTAIN ASSUMED LIABILITIES
- --Banco Popular Indebtedness
- --Indebtedness relating to the AS400 Computer
- --Any other indebtedness of the Company that is secured by assets to be
transferred to ECI or assets of a Transferred Subsidiary
20
<PAGE>
SCHEDULE 5.02
EMPLOYEES TO BE TERMINATED
Pacita Donovan
21
<PAGE>
EXHIBIT A
TO
SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-----------------------------------------------
REPURCHASE AND RECAPITALIZATION AGREEMENT
-----------------------------------------------
AMONG
ATLANTIC TELE-NETWORK, INC.,
CORNELIUS B. PRIOR, JR.,
1994 PRIOR CHARITABLE REMAINDER TRUST
AND
JEFFREY J. PROSSER
DATED AUGUST 11, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
REPURCHASE
<C> <S> <C>
Section 1.01. Purchase of Shares......................................... 1
Section 1.02. Sale of Shares............................................. 2
ARTICLE II
RECAPITALIZATION
Section 2.01. Issuance of Class A Common Stock........................... 2
Section 2.02. Issuance of Class B Common Stock........................... 2
ARTICLE III
CONDITIONS TO CLOSING
Section 3.01. Subscription Agreement Closing............................. 2
Section 3.02. Merger Agreement Closing................................... 2
Section 3.03. Performance................................................ 2
Section 3.04. Charter Amendment.......................................... 2
ARTICLE IV
CLOSING DATE; CLOSING
Section 4.01. Closing Date; Closing...................................... 3
Section 4.02. Further Assurances......................................... 3
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.01. Termination................................................ 3
Section 5.02. Entire Agreement........................................... 3
Section 5.03. Governing Law.............................................. 3
Section 5.04. Headings................................................... 4
Section 5.05. Counterparts............................................... 4
Section 5.06. Benefits................................................... 4
Section 5.07. Assignment................................................. 4
Section 5.08. Amendment and Waiver....................................... 4
Section 5.09. Notices.................................................... 4
Section 5.10. Best Efforts............................................... 5
Section 5.11. Tax Treatment.............................................. 5
EXHIBIT
Exhibit A-- Form of Charter Amendment
</TABLE>
i
<PAGE>
REPURCHASE AND RECAPITALIZATION AGREEMENT
THIS REPURCHASE AND RECAPITALIZATION AGREEMENT (this "Recapitalization
Agreement") is entered into as of the 11th day of August, 1997 by and among
Atlantic Tele-Network, Inc., a Delaware corporation (the "Company"), Cornelius
B. Prior, Jr. ("Prior"), individually and as Trustee of the 1994 PRIOR
CHARITABLE REMAINDER TRUST (the "Trust"), and Jeffrey J. Prosser ("Prosser").
WHEREAS, to eliminate corporate disputes and to maximize the value of the
Company for the benefit of the Company and its stockholders, the Company has
entered into a Principal Terms Agreement dated January 29, 1997 among the
Company, Prior and Prosser, which contemplates the separation of the
businesses and assets of the Company in the manner set forth herein and in the
Subscription Agreement (as defined below) and the Merger Agreement (as defined
below); and
WHEREAS, the Company and Emerging Communications, Inc., a Delaware
corporation ("ECI"), have entered into a Subscription Agreement of even date
herewith (the "Subscription Agreement"), pursuant to which in order to
accomplish such separation, subject to the terms and conditions set forth in
the Subscription Agreement, the Company has agreed to transfer to ECI all of
the capital stock of its wholly owned subsidiaries, Atlantic Tele-Network,
Co., a Virgin Islands corporation ("ATNCo."), and Atlantic Aircraft, Inc., a
Delaware corporation ("Aircraft Corp."), as well as certain other assets of
the Company as more fully described therein relating to businesses conducted
by ATNCo., its subsidiaries, Virgin Islands Telephone Corporation, a Virgin
Islands corporation, Vitelcom Cellular Inc., a Virgin Islands corporation, and
Vitelcom, Inc., a Virgin Islands corporation, and Aircraft Corp. in exchange
for 10,959,131 shares of common stock, par value $0.01 per share (the "ECI
Common Stock"), of ECI; and
WHEREAS, subject to the terms and conditions set forth herein, (a) the
Company desires to repurchase an aggregate of 765,562 shares of common stock,
par value $.01 per share (the "Company Common Stock"), of the Company owned by
Prior and the Trust, and (b) Prosser desires to exchange 3,325,000 shares of
Company Common Stock owned by Prosser and certain members of his family
(including shares which he holds under an option to purchase) for 3,325,000
shares of a new series of common stock of the Company to be designated Class A
Common Stock and Prior desires to exchange 2,927,038 shares of Company Common
Stock owned by Prior and certain members of his family for 2,927,038 shares of
a new series of common stock of the Company to be designated Class B Common
Stock; and
WHEREAS, the Company and ATN MergerCo., a Delaware corporation ("Merger
Sub"), have entered into an Agreement and Plan of Merger of even date herewith
(the "Merger Agreement"), pursuant to which, subject to the terms and
conditions contained therein, Merger Sub will merge with and into the Company,
with each share of Company Common Stock being converted into one share of ECI
Common Stock and 0.40 shares of Company Common Stock, the outstanding shares
of Class A Common Stock will be converted into an aggregate of 5,704,231
shares of ECI Common Stock and the outstanding shares of Class B Common Stock
will be converted into an aggregate of 2,807,040 shares of Company Common
Stock (the "Merger"); and
WHEREAS, the consummation of the Closing (as defined herein) is a condition
to the consummation of the Merger pursuant to the Merger Agreement;
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained and subject to the terms and conditions hereinafter
set forth, the parties hereto hereby agree as follows:
ARTICLE I
REPURCHASE
Section 1.01. Purchase of Shares. Subject to the terms and conditions
contained herein, the Company agrees to purchase at the Closing (as defined
herein) 416,998 shares of Company Common Stock owned by Prior (the "Prior
Repurchase Shares") at a purchase price of $22.7284 per share and 384,564
shares of Company Common Stock owned by the Trust (the "Trust Shares") at a
purchase price of $22.7284 per share.
1
<PAGE>
Section 1.02. Sale of Shares. Subject to the terms and conditions contained
herein, (i) Prior agrees to sell and deliver to the Company at the Closing the
Prior Repurchase Shares for a purchase price of $22.7284 per share and (ii)
the Trust agrees to sell and deliver to the Company the Trust Shares for a
purchase price of $22.7284 per share.
ARTICLE II
RECAPITALIZATION
Section 2.01. Issuance of Class A Common Stock. (a) Subject to the terms and
conditions contained herein, the Company agrees to issue and deliver to
Prosser at the Closing 3,325,000 shares of the Company's Class A Common Stock,
par value $0.01 per share (the "Class A Common Stock"), to be authorized
pursuant to the Charter Amendment (as defined herein) in exchange for all of
the 3,325,000 shares of Company Common Stock owned by Prosser and certain
members of his family or as to which Prosser currently holds an option to
purchase (the "Prosser Shares").
(b) Subject to the terms and conditions contained herein, Prosser agrees to
deliver to the Company at the Closing the Prosser Shares in exchange for
3,325,000 shares of the Class A Common Stock.
Section 2.02. Issuance of Class B Common Stock. (a) Subject to the terms and
conditions contained herein, the Company agrees to issue and deliver to Prior
at the Closing 2,927,038 shares of the Company's Class B Common Stock, par
value $0.01 per share (the "Class B Common Stock"), to be authorized pursuant
to the Charter Amendment in exchange for 2,927,038 shares of Company Common
Stock owned by Prior and certain members of his family (the "Prior Exchange
Shares").
(b) Subject to the terms and conditions contained herein, Prior agrees to
deliver to the Company at the Closing the Prior Exchange Shares in exchange
for 2,927,038 shares of the Class B Common Stock.
ARTICLE III
CONDITIONS TO CLOSING
The obligations of the parties to consummate the transactions to be
consummated by the parties at the Closing shall be subject to the satisfaction
of the following conditions on or prior to the Closing Date:
Section 3.01. Subscription Agreement Closing. Each of the conditions to the
closing under the Subscription Agreement (the "Subscription Agreement
Closing") shall have been satisfied or, with the consent of each of the
parties hereto, waived; and the Subscription Agreement Closing shall have been
consummated in accordance with the provisions of the Subscription Agreement.
Section 3.02. Merger Agreement Closing. Each of the conditions to the
Closing under the Merger Agreement (the "Merger Agreement Closing") shall have
been satisfied or with the consent of each of the parties hereto waived; and
all parties thereto shall appear ready, willing and able to consummate the
transactions therein provided to be consummated at the Merger Agreement
Closing.
Section 3.03. Performance. Each of the parties hereto shall have performed
and complied in all material respects with all obligations and conditions
required by this Recapitalization Agreement to be performed or complied with
by it at or prior to the Closing.
Section 3.04. Charter Amendment. The Company shall have adopted and filed
with the Secretary of State of Delaware a Restated Certificate of
Incorporation substantially in the form of Exhibit A attached hereto (the
"Charter Amendment").
2
<PAGE>
ARTICLE IV
CLOSING DATE; CLOSING
Section 4.01. Closing Date; Closing. The closing of the purchase and sale of
the Prior Repurchase Shares and Trust Shares and, immediately thereafter, the
closing of the exchange of the Prosser Shares for the Class A Common Stock and
the Prior Exchange Shares for the Class B Common Stock hereunder
(collectively, the "Closing") shall take place on the same day as the
Subscription Agreement Closing and the Merger Agreement Closing (and shall
occur after the Subscription Agreement Closing and prior to the Merger
Agreement Closing) and shall be held as soon as reasonably practicable after
satisfaction or waiver by the parties hereto of the conditions set forth in
Article VI hereof. The date on which the Closing occurs is referred to herein
as the "Closing Date". The Closing shall take place at the offices of Cahill
Gordon & Reindel, 80 Pine Street, New York, New York 10005. At the Closing,
(i) the Company shall pay by wire transfer of immediately available funds to
an account specified therefor by Prior the aggregate purchase price for the
Prior Repurchase Shares, (ii) the Company shall pay by wire transfer of
immediately available funds to an account specified therefor by the Trust the
aggregate purchase price for the Trust Shares, (iii) Prior shall deliver to
the Company the Prior Repurchase Shares duly endorsed in blank for transfer or
accompanied by a duly executed stock power assigning the Prior Repurchase
Shares in blank, (iv) the Trust shall deliver to the Company the Trust Shares
duly endorsed in blank for transfer or accompanied by a duly executed stock
power assigning the Trust Shares in blank, (v) the Company shall issue
3,325,000 shares of Class A Common Stock to Prosser registered in such names
and denominations as Prosser shall request, (vi) the Company shall issue
2,927,038 shares of Class B Common Stock to Prior registered in such names and
denominations as Prior shall request, (vii) Prosser shall deliver to the
Company the Prosser Shares duly endorsed in blank or accompanied by a duly
executed stock power assigning the Prosser Shares in blank and (viii) Prior
shall deliver to the Company the Prior Exchange Shares duly endorsed in blank
or accompanied by a duly executed stock power assigning the Prior Exchange
Shares in blank.
Section 4.02. Further Assurances. Each of the parties agrees that after the
Closing, upon reasonable request of the other party, it will do, execute,
deliver and acknowledge, and will cause to be done, executed, delivered and
acknowledged, all such further acts, deeds, certificates, assignments,
transfers, conveyances, powers of attorney and other documents as may be
reasonably required to consummate the transactions contemplated hereby. Each
of Prior, Prosser and the Trust agree to vote all shares of Company Common
Stock owned or controlled by them in favor of the Transactions at the Special
Meeting (as defined in the Merger Agreement).
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.01. Termination. This Recapitalization Agreement shall terminate
upon any termination of the Subscription Agreement or the Merger Agreement. In
addition, this Recapitalization Agreement may be terminated at any time prior
to the Closing by mutual written consent of each party hereto. In the event of
any such termination, no party shall have any liability of any kind to any
other party.
Section 5.02. Entire Agreement. This Recapitalization Agreement, together
with all other written agreements which may be entered into between the
parties in connection herewith and the transactions contemplated hereby and
all other documents and instruments delivered in connection herewith and
therewith and the transactions contemplated hereby and thereby, set forth the
full and complete understanding of the parties hereto with respect to the
transactions contemplated hereby.
Section 5.03. Governing Law. This Recapitalization Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without reference to the conflict of laws rules thereof.
3
<PAGE>
Section 5.04. Headings. The headings in this Recapitalization Agreement are
intended solely for convenience of reference and shall be given no effect in
the interpretation of this Recapitalization Agreement.
Section 5.05. Counterparts. This Recapitalization Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
Section 5.06. Benefits. This Recapitalization Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns, and no other person will have any right or obligation
hereunder.
Section 5.07. Assignment. Neither this Recapitalization Agreement nor any
right hereunder may be assigned by the parties hereto without the prior
written consent of the other parties. Subject to the foregoing, this
Recapitalization Agreement shall be binding upon and inure to the benefit of
the successors, heirs, representatives and assigns of each party hereto.
Section 5.08. Amendment and Waiver. This Recapitalization Agreement may be
amended only by an instrument in writing signed on behalf of each of the
parties hereto. Any term, condition or provision of this Recapitalization
Agreement may be waived (if in writing) at any time by the party or each of
the parties entitled to the benefits thereof.
Section 5.09. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
given if delivered by hand, or when sent by telex or telecopier (with receipt
confirmed) or by registered mail, return receipt requested, addressed as
follows (or to such other address as a party may designate by notice to the
other):
(a)If to the Company or Prior:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
with copies to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver & Jacobson
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
(b)If to Prosser:
c/o Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-7700
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
4
<PAGE>
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
(c)If to the Trust:
c/o Cornelius B. Prior
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Telecopy: (809) 774-7790
with copies to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
Section 5.10. Best Efforts. Each of the parties hereto shall use his or its
best efforts to cause the Transactions to be consummated. Without limiting the
generality of the foregoing, (i) Prior, individually and as trustee of the
Trust, and Prosser agree to vote all of their shares of Company Common Stock
in favor of the approval of the Transactions and the adoption of the Merger
Agreement and the Charter Amendment, (ii) each of the parties hereto shall
execute all contracts, documents and instruments, the execution of which is
contemplated as a condition to closing under this Recapitalization Agreement,
the Subscription Agreement or the Merger Agreement, (iii) each of the parties
shall promptly, at the request of counsel to the Company or counsel to ECI,
supply such counsel with letters of representation reasonable under the
circumstances as to facts or statements of intention represented to the
Internal Revenue Service in connection with the Company's application for the
Tax Ruling (as defined in the Subscription Agreement) and (iv) each of the
parties shall take all steps within his or its control to cause the other
conditions to closing of the Transactions to be consummated and shall
generally use his or its best efforts to cause the Transactions to be
consummated.
Section 5.11. Tax Treatment. The Company and Prior, individually and as
trustee of the Trust, agree to report for tax purposes the purchase of the
Prior Repurchase Shares and the Trust Shares pursuant to Article I hereof as
distributions of property to which Section 301 of the Internal Revenue Code of
1986, as amended, applies.
5
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Recapitalization Agreement to be duly executed, all as of the date first
written above.
ATLANTIC TELE-NETWORK, INC.
By: /s/ Cornelius B. Prior
__________________________________
Name: Cornelius B. Prior
Title: Co-Chief Executive Officer
By: /s/ Jeffrey J. Prosser
__________________________________
Name: Jeffrey J. Prosser
Title: Co-Chief Executive Officer
1994 PRIOR CHARITABLE REMAINDER
TRUST
By: /s/ Cornelius B. Prior
__________________________________
Name: Cornelius B. Prior
Title: Trustee
/s/ Cornelius B. Prior
___________________________________
Cornelius B. Prior
/s/ Jeffrey J. Prosser
___________________________________
Jeffrey J. Prosser
6
<PAGE>
EXHIBIT A TO
REPURCHASE AND
RECAPITALIZATION
AGREEMENT
RESTATED CERTIFICATE OF INCORPORATION
OF
ATLANTIC TELE-NETWORK, INC.
FIRST: The name of the Corporation is Atlantic Tele-Network, Inc.
SECOND: The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of capital stock which the
Corporation shall have the authority to issue is 36,252,038 shares divided
into two classes of which
(i) 10,000,000 shares, par value $.01 per share, shall be designated
Preferred Stock,
(ii) 20,000,000 shares, par value $.01 per share, shall be designated
Common Stock,
(iii) 3,325,000 shares, par value $.01 per share, shall be designated Class
A Common Stock, and
(iv) 2,927,038 shares, par value $.01 per share shall be designated Class B
Common Stock.
A. Preferred Stock
1. Issuance. The Board of Directors is expressly authorized, subject to
limitations prescribed by law, to provide for the issuance of shares of
Preferred Stock in one or more series, to establish the number of shares to be
included in each such series, and to fix the designations, powers,
preferences, and rights of the shares of each such series, and any
qualifications, limitations, or restrictions thereof.
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate, if any, on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and whether they shall be payable in preference to, or in another
relation to, the dividends payable to any other class or classes or
series of stock;
(c) Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion or exchange privileges, and,
if so, the terms and conditions of such conversion or exchange,
including provision for adjustment of the conversion or exchange rate
in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption, including the manner
of selecting shares for redemption if less than all shares are to be
redeemed, the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(f) Whether that series shall be entitled to the benefit of a sinking fund
to be applied to the purchase or redemption of shares of that series,
and, if so, the terms and amounts of such sinking fund;
1
<PAGE>
(g) The right of the shares of that series to the benefit of conditions and
restrictions upon the creation of indebtedness of the Corporation or
any subsidiary, upon the issue of any additional stock (including
additional shares of such series or of any other series) and upon the
payment of dividends or the making of other distributions on, and the
purchase, redemption or other acquisition by the Corporation or any
subsidiary of any outstanding stock of the Corporation;
(h) The right of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation
and whether such rights shall be in preference to, or in another
relation to, the comparable rights of any other class or classes or
series of stock; and
(i) Any other relative, participating, optional or other special rights,
qualifications, limitations or restrictions of that series.
B. Common Stock
1. Dividends. Subject to the preferential rights, if any, of the Preferred
Stock, the holders of shares of Common Stock, Class A Common Stock and Class B
Common Stock shall be entitled to receive, when and if declared by the Board
of Directors, out of the assets of the Corporation which are by law available
therefor, dividends payable either in cash, in property, or in shares of
Common Stock.
2. Voting Rights. At every annual or special meeting of stockholders of the
Corporation, every holder of Common Stock, Class A Common Stock and Class B
Common Stock shall be entitled to one vote, in person or by proxy, for each
share of Common Stock, Class A Common Stock and Class B Common Stock standing
in his name on the books of the Corporation.
3. Liquidation, Dissolution, or Winding Up. In the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the affairs of the
Corporation, after payment or provision for payment of the debts and other
liabilities of the Corporation and of the preferential amounts, if any, to
which the holders of Preferred Stock shall be entitled, the holders of all
outstanding shares of Common Stock, Class A Common Stock and Class B Common
Stock shall be entitled to share ratably in the remaining net assets of the
Corporation.
4. Rights of Class A Common Stock and Class B Common Stock. All rights of
the Class A Common Stock and Class B Common Stock shall be identical to the
rights of the Common Stock, except in a merger, consolidation or sale of
assets of the Corporation the Class A Common Stock and the Class B Common
Stock shall have the right to receive separate and distinct consideration from
the Common Stock as determined by the Board of Directors.
FIFTH: The name and mailing address of the Incorporator is as follows:
NAME MAILING ADDRESS
Jeffrey J. Prosser 48 Kronprindsens Gade
Charlotte Amalie, St. Thomas
U.S. Virgin Islands 00801
SIXTH: The board of directors is expressly authorized to adopt, amend, or
repeal the by-laws of the Corporation.
SEVENTH: Elections of directors need not be by written ballot unless the by-
laws of the Corporation shall otherwise provide.
EIGHTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that the foregoing shall not
2
<PAGE>
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the General Corporation
Law of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. If the General Corporation Law of Delaware is
hereafter amended to permit further elimination or limitation of the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of Delaware as so amended. Any repeal or modification of this
Article EIGHTH by the stockholders of the Corporation or otherwise shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
NINTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as
the case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of
this Corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this Corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which said application has
been made, be binding on all the creditors or class of creditors, and/or on
all of the stockholders or class of stockholders, of this Corporation, as the
case may be, and also on this Corporation.
TENTH: The Corporation reserves the right to amend, alter, change, or repeal
any provision contained in this Certificate of Incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
3
<PAGE>
EXHIBIT B
TO
SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
--------------------------------------
AGREEMENT AND PLAN OF MERGER
--------------------------------------
BETWEEN
ATLANTIC TELE-NETWORK, INC.
AND
ATN MERGERCO.
DATED AS OF AUGUST 11, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
THE MERGER
<C> <S> <C>
Section 1.01. The Merger................................................ 1
Section 1.02. Effective Time............................................ 2
Certificate of Incorporation and By-Laws of Surviving
Section 1.03. Corporation.............................................. 2
Section 1.04. Directors and Officers of Surviving Corporation........... 2
Section 1.05. Stockholders' Meeting..................................... 2
Section 1.06. Filing of Certificate of Merger........................... 2
Section 1.07. Further Assurances........................................ 2
ARTICLE II
CONVERSION OF SHARES
Section 2.01. Shares.................................................... 2
Section 2.02. Exchange of Shares........................................ 3
Section 2.03. Dividends, Transfer Taxes................................. 3
Section 2.04. No Fractional Shares...................................... 3
ARTICLE III
CONDITIONS TO CLOSING
Section 3.01. Stockholder Approval...................................... 4
Section 3.02. Closings.................................................. 4
Section 3.03. Performance............................................... 4
ARTICLE IV
CLOSING DATE; CLOSING
Section 4.01. Closing Date; Closing..................................... 4
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.01. Termination............................................... 5
Section 5.02. Entire Agreement.......................................... 5
Section 5.03. Governing Law............................................. 5
Section 5.04. Headings.................................................. 5
Section 5.05. Counterparts.............................................. 5
Section 5.06. Benefits.................................................. 5
Section 5.07. Assignment................................................ 5
Section 5.08. Amendment and Waiver...................................... 5
Section 5.09. Notices................................................... 5
</TABLE>
i
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Merger Agreement") is entered into
as of the 11th day of August, 1997 by and between Atlantic Tele-Network, Inc.,
a Delaware corporation (the "Company"), and ATN MergerCo., a Delaware
corporation ("Newco").
WHEREAS, to eliminate corporate disputes and to maximize the value of the
Company for the benefit of the Company and its stockholders, the Company has
entered into a Principal Terms Agreement dated January 29, 1997 among the
Company and its co-chief executive officers and principal stockholders,
Cornelius B. Prior, Jr. ("Prior") and Jeffrey J. Prosser ("Prosser"), which
contemplates the separation of the businesses and assets of the Company in the
manner set forth herein and in the Recapitalization Agreement (as defined
below) and the Subscription Agreement (as defined below); and
WHEREAS, in order to accomplish such separation, the Company and Emerging
Communications, Inc., a Delaware corporation ("ECI"), have entered into a
Subscription Agreement of even date herewith (the "Subscription Agreement"),
pursuant to which, subject to the terms and conditions set forth therein, the
Company has agreed to transfer to ECI all of the capital stock of its wholly
owned subsidiaries, Atlantic Tele-Network, Co., a Virgin Islands corporation
("ATNCo."), and Atlantic Aircraft, Inc., a Delaware corporation, as well as
certain other assets of the Company as more fully described therein relating
to businesses conducted by ATNCo., its subsidiaries, Virgin Islands Telephone
Corporation, a Virgin Islands corporation ("VITELCO"), Vitelcom Cellular Inc.,
a Virgin Islands corporation, and Vitelcom, Inc., a Virgin Islands
corporation, and Aircraft Corp. in exchange for 10,959,131 shares of common
stock, par value $0.01 per share (the "ECI Common Stock"), of ECI; and
WHEREAS, the Company, Prior, Prosser and the 1994 Prior Charitable Remainder
Trust have entered into a Recapitalization Agreement dated of even date
herewith (the "Recapitalization Agreement"), pursuant to which, subject to the
terms and conditions set forth therein, (a) the Company has agreed to
repurchase an aggregate of 765,852 shares of common stock, par value $.01 per
share (the "Company Common Stock"), of the Company owned by Prior and the
Trust, and (b) Prosser has agreed to exchange 3,325,000 shares of Company
Common Stock owned by Prosser and certain members of his family for 3,325,000
shares of a new class of common stock, par value $0.01 per share, of the
Company denominated Class A Common Stock ("Class A Common Stock") and Prior
has agreed to exchange 2,927,038 shares of Company Common Stock owned by Prior
for 2,927,038 shares of a new class of common stock, par value $0.01 per
share, of the Company denominated Class B Common Stock (the "Class B Common
Stock" and, together with the Company Common Stock and the Class A Common
Stock, the "Common Stock"); and
WHEREAS, Newco desires to merge with the Company and the Company desires to
merge with Newco, all upon the terms and subject to the conditions of this
Merger Agreement.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained and subject to the terms and conditions hereinafter
set forth, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.01. The Merger. (a) In accordance with the provisions of this
Merger Agreement and the General Corporation Law of the State of Delaware (the
"Delaware Act"), at the Effective Time (as hereinafter defined), Newco shall
be merged (the "Merger") with and into the Company, and the Company shall be
the surviving corporation (hereinafter sometimes called the "Surviving
Corporation") and shall continue its corporate existence under the laws of the
State of Delaware. The name of the Surviving Corporation shall be the same as
that of the Company. At the Effective Time, the separate existence of Newco
shall cease.
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(b) The Merger shall have the effects on Newco and the Company as
constituent corporations of the Merger as provided under the Delaware Act.
Section 1.02. Effective Time. The Merger shall become effective at the time
of filing of, or at such later time specified in, a certificate of merger, in
the form required by and executed in accordance with the Delaware Act, with
the Secretary of State of the State of Delaware in accordance with the
provisions of (S) 251 of the Delaware Act (the "Certificate of Merger"). The
date and time when the Merger shall become effective is herein referred to as
the "Effective Time."
Section 1.03. Certificate of Incorporation and By-Laws of Surviving
Corporation. At the Effective Time, the Certificate of Incorporation shall be
amended and restated in its entirety in the form set forth in Exhibit 1.03
hereto and the Certificate of Incorporation as so amended and the By-Laws of
the Company, as in effect immediately prior to the Effective Time, shall be
the Certificate of Incorporation and By-Laws of the Surviving Corporation
until thereafter amended as provided by law.
Section 1.04. Directors and Officers of Surviving Corporation. The directors
of Newco immediately prior to the Effective Time will be, from and after the
Effective Time, the directors of the Surviving Corporation, and the officers
of the Company immediately prior to the Effective Time will be, from and after
the Effective Time, the officers of the Surviving Corporation, in each case
until their successors are elected and qualified.
Section 1.05. Stockholders' Meeting. The Company will take all action
necessary in accordance with applicable law and its Restated Certificate of
Incorporation and By-Laws to convene a special meeting of its stockholders
(the "Special Meeting") as soon as practicable to consider and vote upon the
approval and adoption of this Merger Agreement and the other components of the
Transactions (as defined in the Subscription Agreement). The Company, through
its Board of Directors, shall recommend to its stockholders approval and
adoption of this Merger Agreement (which recommendation shall be contained in
the related proxy statement) and shall use all commercially reasonable efforts
to solicit from its stockholders proxies in favor of approval and adoption of
this Merger Agreement and the other components of the Transactions.
Section 1.06. Filing of Certificate of Merger. At the Closing (as
hereinafter defined), Newco and the Company shall cause a Certificate of
Merger to be executed and filed with the Secretary of State of the State of
Delaware as provided in (S) 251 of the Delaware Act, and shall take any and
all other lawful actions and do any and all other lawful things to cause the
Merger to become effective.
Section 1.07. Further Assurances. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills
of sale, assignments, assurances or any other actions or things are necessary
or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of the constituent corporations
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger or otherwise to carry out this Merger Agreement,
the officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of each of the constituent
corporations or otherwise, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each of the
constituent corporations or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out this Merger Agreement.
ARTICLE II
CONVERSION OF SHARES
Section 2.01. Shares. (a) Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive (i) 0.40 shares of Common Stock, par value $0.01 per
share, of the Surviving Corporation ("Surviving Corporation Common Stock") and
(ii) one share of ECI Common Stock.
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(b) The outstanding shares of Class A Common Stock issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holders thereof, be converted into the
right to receive 5,704,231 shares of ECI Common Stock in the aggregate.
(c) The outstanding shares of Class B Common Stock issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive 2,807,040 shares of Surviving Corporation Common Stock in the
aggregate.
(d) Each share of Common Stock, par value $0.01 per share, of Newco shall,
by virtue of the Merger and without any action on the part of any holder
thereof, be cancelled and no consideration shall be issued in respect thereof.
(e) All shares of Class A Common Stock, Class B Common Stock, Company Common
Stock and all shares of common stock, par value $0.01 per share, of Newco, by
virtue of the Merger and without any action on the part of holders thereof,
shall no longer be outstanding and shall be canceled and retired and cease to
exist. Each holder of Company Common Stock, Class A Common Stock or Class B
Common Stock immediately prior to the Effective Time shall, after the Merger,
cease to have any rights with respect such Company Common Stock, Class A
Common Stock or Class B Common Stock except the right to receive the
applicable Merger consideration set forth in Section 2.01 upon surrender of
certificates therefor in accordance with Section 2.02.
Section 2.02. Exchange of Shares. Prior to the Effective Time, the Company
shall select The Bank of New York or such other person or persons reasonably
satisfactory to the Company to act as Exchange Agent for the Merger (the
"Exchange Agent"). As soon as practicable after the Effective Time, the
Company shall make available, and each holder of certificates formerly
representing Company Common Stock, Class A Common Stock and Class B Common
Stock (each, a "Company Holder") will be entitled to receive, upon surrender
to the Exchange Agent of one or more certificates representing such stock
("Certificates") for cancellation, certificates representing the number of
shares of Surviving Corporation Common Stock and ECI Common Stock into which
such shares are converted in the Merger and cash in consideration of
fractional shares as provided in Section 2.04. Such shares of Surviving
Corporation Common Stock and ECI Common Stock issued in the Merger shall each
be deemed, for all purposes including the right to receive notices of and to
vote at meetings of stockholders and the right to receive dividends, if any,
to have been issued at the Effective Time.
Section 2.03. Dividends, Transfer Taxes. Notwithstanding Section 2.02
hereof, no dividends or other distributions that are declared or made on
Surviving Corporation Common Stock or ECI Common Stock will be paid to persons
entitled to received certificates representing Surviving Corporation Common
Stock or ECI Common Stock pursuant to this Merger Agreement until such persons
surrender their Certificates formerly representing Company Common Stock. Upon
such surrender, there shall be paid to the person in whose name the
certificates representing such Surviving Corporation Common Stock or ECI
Common Stock shall be issued any dividends or other distributions which shall
have become payable with respect to such stock in respect of a record date
after the Effective Time. In no event shall the persons entitled to receive
such dividends be entitled to receive interest on such dividends. In the event
that any certificates for any shares of Surviving Corporation Common Stock are
to be issued in a name other than that in which the Certificates formerly
representing shares of Company Common Stock surrendered in exchange therefor
are registered, it shall be a condition of such exchange that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of certificates for such shares of
Surviving corporation Common Stock or ECI Common Stock or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a Company Holder for any shares of Surviving
Corporation Common Stock, ECI Common Stock or dividends thereon delivered to a
public official pursuant to any applicable escheat or similar abandoned
property laws.
Section 2.04. No Fractional Shares. Notwithstanding anything herein to the
contrary, no certificates or scrip representing less than one full share of
Surviving Corporation Common Stock or ECI Common Stock shall
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be issued upon the surrender for exchange of Certificates representing Company
Common Stock, Class A Common Stock or Class B Common Stock pursuant to Section
2.02. In lieu of any such fractional share, each Company Holder who would
otherwise have been entitled to a fraction of a share of Surviving Corporation
Common Stock or ECI Common Stock pursuant to Section 2.01 shall be paid upon
surrender of Certificates for exchange pursuant to Section 2.02 cash (without
interest) in an amount equal to such holder's proportionate interest in the
net proceeds from the sale or sales in the open market by the Exchange Agent,
on behalf of all such holders, of the Excess Shares (as defined below). As
soon as practicable following the Effective Date, the Exchange Agent shall
determine the excess of (i) the number of full shares of Surviving Corporation
Common Stock and ECI Common Stock delivered to the Exchange Agent by the
Surviving Corporation over (ii) the aggregate number of full shares of
Surviving Corporation Common Stock and ECI Common Stock to be distributed to
holders of Company Common Stock, Class A Common Stock and Class B Common Stock
(such excess being herein called the "Excess Shares"), and the Exchange Agent,
as agent for each of the former Company Holders, shall sell the Excess Shares
at the prevailing prices on the American Stock Exchange. The sale of the
Excess Shares by the Exchange Agent shall be executed on the American Stock
Exchange through one or more member firms of the American Stock Exchange and
shall be executed in round lots to the extent practicable. The Surviving
Corporation shall pay all commissions, transfer taxes and other out-of-pocket
transaction costs, including the expenses and compensation of the Exchange
Agent, incurred in connection with such sale of Excess Shares. Until the net
proceeds of such sale have been distributed to the former Company Holders, the
Exchange Agent will hold such proceeds in trust for each of such former
stockholders (the "Fractional Securities Fund"). As soon as practicable after
the determination of the amount of cash to be paid to former Company Holders
in lieu of any fractional interests, the Exchange Agent shall make available
in accordance with this Merger Agreement such amount to such former
stockholders.
ARTICLE III
CONDITIONS TO CLOSING
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing of each of the following
conditions:
Section 3.01. Stockholder Approval. This Merger Agreement and the
Transactions (as defined in the Subscription Agreement) shall have been
approved and adopted by the holders of a majority of the outstanding shares of
Company Common Stock.
Section 3.02. Closings. Each of the conditions to the closing under the
Subscription Agreement (the "Subscription Agreement Closing") and the closing
under the Recapitalization Agreement (the "Recapitalization Agreement
Closing") shall have been satisfied or, with the consent of each party hereto,
waived; the Subscription Agreement Closing shall have been consummated in
accordance with the provisions of the Subscription Agreement; and the
Recapitalization Agreement Closing shall have been consummated in accordance
with the provisions of the Recapitalization Agreement.
Section 3.03. Performance. Each of the parties hereto shall have performed
and complied in all material respects with all obligations and conditions
required by this Merger Agreement to be performed or complied with by it at or
prior to the Closing.
ARTICLE IV
CLOSING DATE; CLOSING
Section 4.01. Closing Date; Closing. The closing of the Merger (the
"Closing") shall take place on the same day as the Subscription Agreement
Closing and the Recapitalization Agreement Closing and shall be held
immediately after consummation of such closings as soon as practicable after
satisfaction or waiver by the
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parties hereto of the conditions set forth in Article III hereof. The date on
which the Closing occurs is referred to herein as the "Closing Date." The
Closing shall take place at the offices of Cahill Gordon & Reindel, 80 Pine
Street, New York, New York 10005. At the Closing, the Company and Newco shall
cause to be executed and filed with the Secretary of State of Delaware the
Certificate of Merger in accordance with the applicable provisions of the
Delaware Act and shall take any and all other lawful actions and do any and
all other lawful things necessary to cause the Merger to become effective.
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.01. Termination. This Merger Agreement shall terminate upon any
termination of the Subscription Agreement or the Recapitalization Agreement.
In addition, this Merger Agreement may be terminated, notwithstanding
stockholder approval hereof, at any time prior to the Effective Time by the
Board of Directors of the Company and the Board of Directors of Newco without
the authorization or consent of the Company's or Newco's stockholders. In the
event of any such termination, neither party shall have any liability of any
kind to the other party.
Section 5.02. Entire Agreement. This Merger Agreement, together with all
other written agreements which may be entered into between the parties in
connection herewith and the transactions contemplated hereby and all other
documents and instruments delivered in connection herewith and therewith and
the transactions contemplated hereby and thereby, set forth the full and
complete understanding of the parties hereto with respect to the transactions
contemplated hereby.
Section 5.03. Governing Law. Except where the laws of the State of Delaware
are by their terms applicable, this Merger Agreement shall be governed by and
construed in accordance with the laws of the State of New York without
reference to the conflict of laws rules thereof.
Section 5.04. Headings. The headings in this Merger Agreement are intended
solely for convenience of reference and shall be given no effect in the
interpretation of this Merger Agreement.
Section 5.05. Counterparts. This Merger Agreement may be executed in two
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
Section 5.06. Benefits. This Merger Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and
assigns, and no other person will have any right or obligation hereunder.
Section 5.07. Assignment. Neither this Merger Agreement nor any right
hereunder may be assigned by the parties hereto without the prior written
consent of the other party. Subject to the foregoing, this Merger Agreement
shall be binding upon and inure to the benefit of the successors, heirs,
representatives and assigns of each party hereto.
Section 5.08. Amendment and Waiver. This Merger Agreement may be amended
only by an instrument in writing signed on behalf of each of the parties
hereto. Subject to the Delaware Act any term, condition or provision of this
Merger Agreement may be waived (if in writing) at any time by the party or
each of the parties entitled to the benefits thereof.
Section 5.09. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
given if delivered by hand, or when sent by telex or telecopier (with
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receipt confirmed) or by registered mail, return receipt requested, addressed
as follows (or to such other address as a party may designate by notice to the
other):
(a)If to the Company or Newco:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
with copies to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
and
Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 00801-1730
(340) 777-7700
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
and
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
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IN WITNESS WHEREOF, each of the Company and Newco has caused this Merger
Agreement to be executed on the date first written above.
Atlantic Tele-Network, Inc.
By: /s/ Cornelius B. Prior
__________________________________
Name: Cornelius B. Prior
Title: Co-Chief Executive Officer
By: /s/ Jeffrey J. Prosser
__________________________________
Name: Jeffrey J. Prosser
Title: Co-Chief Executive Officer
ATN MergerCo.
By: /s/ Cornelius B. Prior
__________________________________
Name: Cornelius B. Prior
Title: President
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EXHIBIT C
TO
SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
---------------------------------
TECHNICAL ASSISTANCE AGREEMENT
---------------------------------
AMONG
ATLANTIC TELE-NETWORK, INC.,
ATLANTIC TELE-NETWORK CO.,
VIRGIN ISLANDS TELEPHONE CORPORATION
AND
VITELCOM CELLULAR INC.
DATED [ ], 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
SERVICES
<C> <S> <C>
Section 1.01. Services to be Provided.................................... 1
Section 1.02. Payment for Services....................................... 1
Section 1.03. Requests for Services...................................... 2
ARTICLE II
CERTAIN AGREEMENTS
Section 2.01. Advisory Contract.......................................... 2
Section 2.02. Indemnity.................................................. 2
ARTICLE III
MISCELLANEOUS PROVISIONS
Section 3.01. Termination................................................ 2
Section 3.02. Entire Agreement........................................... 3
Section 3.03. Governing Law.............................................. 3
Section 3.04. Headings................................................... 3
Section 3.05. Counterparts............................................... 3
Section 3.06. Benefits................................................... 3
Section 3.07. Assignment................................................. 3
Section 3.08. Amendment and Waiver....................................... 3
Section 3.09. Notices.................................................... 3
EXHIBIT A Advisory Contract
</TABLE>
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TECHNICAL ASSISTANCE AGREEMENT
THIS TECHNICAL ASSISTANCE AGREEMENT (this "Technical Assistance Agreement")
is entered into as of the [ ] day of [ ], 1997 by and among ATLANTIC
TELE-NETWORK, INC., a Delaware corporation (the "Company"), ATLANTIC TELE-
NETWORK CO., a U.S. Virgin Islands corporation ("ATNCo."), VIRGIN ISLANDS
TELEPHONE CORPORATION, a U.S. Virgin Islands corporation ("VITELCO"), and
VITELCOM CELLULAR INC., a U.S. Virgin Islands corporation ("VCI").
WHEREAS, pursuant to an agreement between the Company and Guyana Telephone
and Telegraph Company Limited ("GTT"), dated as of January 28, 1991 (the
"Advisory Contract"), a copy of which is attached as Exhibit A hereto, the
Company has the continuing obligation to provide technical and professional
service, advice and assistance to GTT in the operation by GTT of its telephone
business, which services and assistance will be conducive to the economical
and efficient development and operation of GTT's telephone system and will
enhance its ability to provide dependable, state-of-art telephone service to
its subscribers;
WHEREAS, ATNCo., VITELCO and VCI have personnel at their disposal who are
trained and experienced in the telecommunications field and who are familiar
with the economical and efficient organization, development and operation of
telecommunications systems and services and have extensive experience in
finance, law, accounting, regulatory matters and the development of
communications apparatus, equipment and services and the rapidly changing
technological and regulatory environment affecting the telecommunications
industry, and the Company has from time to time in the past called upon ATNCo,
VITELCO and/or VCI to assist the Company in providing services and advice to
GTT pursuant to the Advisory Contract; and
WHEREAS, this Technical Assistance Agreement is being entered into in
connection with and in consideration of the transfer by the Company to
Emerging Communications, Inc., pursuant to the Subscription Agreement dated
August 11, 1997 between them, of all of the outstanding capital stock of
ATNCo., which transfer will provide significant benefits to ATNCo., VITELCO
and VCI by resolving certain management problems which have heretofore
affected such corporations.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein contained and subject to the terms and conditions hereinafter
set forth, the parties hereto hereby agree as follows:
ARTICLE I
SERVICES
Section 1.01. Services to be Provided. Subject to the terms and conditions
of this Technical Services Agreement, each of ATNCo., VITELCO and VCI agrees
to make available its employees to the Company at its request from time to
time during the term of this Agreement to assist and support the Company in
carrying out its obligations under the Advisory Contract. Such support and
assistance shall include performing services at the premises of ATNCo.,
VITELCO, VCI, the Company or GTT or their respective affiliates. ATNCo,
VITELCO or VCI, as the case may be, shall determine (in consultation with the
Company) which of its employees will perform any services requested hereunder.
Notwithstanding anything contained in this Technical Services Agreement to the
contrary, (a) none of ATNCo., VITELCO or VCI shall be required to make
available to the Company pursuant to this Technical Assistance Agreement at
any one time more than the greater of 3% of its employees or three employees
in the aggregate for all of them, (b) no employee of ATNCo., VITELCO or VCI
shall be required to be made available to the Company pursuant to this
Technical Assistance Agreement for a period of greater than 20 hours during
any calendar month and (c) none of ATNCo., VITELCO or VCI shall be required to
make available to the Company any employee to the extent that doing so would
interfere in any material respect with the performance of such employee's
duties to ATNCo., VITELCO or VCI, as the case may be, or otherwise cause a
burden to ATNCo., VITELCO or VCI, as the case may be.
Section 1.02. Payment for Services. The Company agrees to reimburse ATNCo.,
VITELCO and VCI, on a monthly basis, (a) for the services of each employee of
ATNCo., VITELCO or VCI, as the case may be,
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who provides services to the Company hereunder during such month, an amount
equal to the product of (i) two times the cost to ATNCo., VITELCO or VCI, as
the case may be, of the salary, wages and benefits of such employee for such
month and (ii) a fraction, the numerator of which is the number of hours such
employee provided services to the Company hereunder and the denominator of
which is the product of (x) eight and (y) the number of days during such month
when ATNCo., VITELCO or VCI, as the case may be, was open for business and (b)
for 100% of all "out-of-pocket expenses," including travel and lodging of any
employee, incurred by ATNCo., VITELCO or VCI, as the case may be, in
performing its obligations hereunder. Payments by the Company pursuant to this
Section 1.02 shall be made within ten days of receipt of an invoice from
ATNCo., VITELCO or VCI, as the case may be, showing in reasonable detail the
amounts due hereunder with respect to any month.
Section 1.03. Requests for Services. ATNCo., VITELCO and VCI shall have no
obligation to perform any services hereunder except such as may be requested
of them by the Company on reasonable notice to them, and they shall not be
entitled to any payments under Section 1.02 from the Company except for
services requested of them by the Company.
ARTICLE II
CERTAIN AGREEMENTS
Section 2.01. Advisory Contract. The Company shall not, without the prior
written consent of each of ATNCo., VITELCO and VCI (which consents shall not
be unreasonably withheld or delayed), enter into any amendment, modification,
waiver, renewal or replacement of the Advisory Contract.
Section 2.02. Indemnity. The Company shall indemnify and hold harmless each
of ATNCo., VITELCO and VCI, each of their respective affiliates and each of
their respective officers, directors, employees, agents and controlling
persons (each an "Indemnified Person") from and against any and all losses,
claims, damages, liabilities and expenses, joint or several, to which any such
Indemnified Person may become subject arising out of or in connection with
this Technical Services Agreement and the services provided hereunder, or any
claim, litigation, investigation or proceedings relating to the foregoing
regardless of whether any of such Indemnified Persons is a party thereto, and
to reimburse such Indemnified Persons for any legal or other out-of-pocket
expenses as they are incurred in connection with investigating or defending
any of the foregoing. The indemnity obligations of the Company under this
Section 2.02 shall be in addition to any liability which the Company may
otherwise have to an Indemnified Party.
ARTICLE III
MISCELLANEOUS PROVISIONS
Section 3.01. Termination. This Technical Services Agreement (other than the
provisions of Sections 1.02, 2.02 and 2.03 which shall survive any
termination) (a) may be terminated (i) by the Company at any time upon written
notice to each of the other parties hereto or (ii) by ATNCo., VITELCO or VCI
upon written notice to the Company if the Company shall have breached or
violated any of the terms or provisions of this Technical Services Agreement
and (b) shall automatically terminate upon (i) the termination of the Advisory
Contract or (ii) a Change of Control (as defined below) of the Company.
As used herein, "Change of Control" means the occurrence of one or more of
the following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all
of the assets of the Company or GTT to any person or group of related persons
for purposes of Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (a "Group"); (ii) the approval by the holders of
capital stock of the Company or GTT, as the case may be, of any plan or
proposal for the liquidation or dissolution of the Company or GTT, as the case
may be; or (iii) the acquisition in one or more
2
<PAGE>
transactions of "beneficial ownership" (within the meaning of Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time) by any person, entity or Group (other than a Permitted Holder
(as defined below) or a Group controlled by any Permitted Holder) of any
capital stock of the Company or GTT such that, as a result of such
acquisition, such person, entity or Group either (A) beneficially owns (within
the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, more than 50% of then outstanding voting securities of the Company
or GTT entitled to vote on a regular basis in an election for a majority of
the board of directors of the Company or GTT or (B) otherwise has the ability
to elect, directly or indirectly, a majority of the members of the board of
directors of the Company or GTT.
As used herein, "Permitted Holders" means Cornelius B. Prior, Jr. and his
estate, heirs and legatees, and the legal representatives of any of the
foregoing, including, without limitation, the trustee of any trust of which
one or more of the foregoing are the sole beneficiaries.
Section 3.02. Entire Agreement. This Technical Assistance Agreement,
together with all other written agreements which may be entered into between
the parties in connection herewith and the transactions contemplated hereby
and all other documents and instruments delivered in connection herewith and
therewith and the transactions contemplated hereby and thereby, set forth the
full and complete understanding of the parties hereto with respect to the
transactions contemplated hereby.
Section 3.03. Governing Law. This Technical Assistance Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without reference to the conflicts of laws rules thereof.
Section 3.04. Headings. The headings in this Technical Assistance Agreement
are intended solely for convenience of reference and shall be given no effect
in the interpretation of this Technical Assistance Agreement.
Section 3.05. Counterparts. This Technical Assistance Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
Section 3.06. Benefits. This Technical Assistance Agreement will inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns, and no other person will have any right or obligation
hereunder.
Section 3.07. Assignment. Neither this Technical Assistance Agreement nor
any right hereunder may be assigned by the parties hereto without the prior
written consent of the other parties. Subject to the foregoing, this Technical
Assistance Agreement shall be binding upon and inure to the benefit of the
successors, heirs, representatives and assigns of each party hereto.
Section 3.08. Amendment and Waiver. This Technical Assistance Agreement may
be amended only by an instrument in writing signed on behalf of each of the
parties hereto. Any term, condition or provision of this Technical Assistance
Agreement may be waived (if in writing) at any time by the party or each of
the parties entitled to the benefits thereof.
Section 3.09 Notices. All notices, requests, demands, and, other
communications hereunder shall be in writing and shall be deemed to have been
given if delivered by hand, or when sent by telex or telecopier (with
3
<PAGE>
receipt confirmed) or by registered mail, return receipt requested, addressed
as follows (or to such other address as a party may designate by notice to the
other):
(a) If to the Company:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 6100
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
with copies to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
(b) If to ATNCo., VITELCO or VCI:
c/o Emerging Communications, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-7700
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Technical
Assistance Agreement to be duly executed, all as of the date first written
above.
Atlantic Tele-Network, Inc.
By: _________________________________
Name: Cornelius B. Prior
Title:Co-Chief Executive Officer
By: _________________________________
Name: Jeffrey J. Prosser
Title:Co-Chief Executive Officer
Atlantic Tele-Network Co.
By: _________________________________
Name:
Title:
Virgin Islands Telephone Corporation
By: _________________________________
Name:
Title:
Vitelcom Cellular Inc.
By: _________________________________
Name:
Title:
5
<PAGE>
EXHIBIT D TO SUBSCRIPTION AGREEMENT
RESTATED CERTIFICATE OF INCORPORATION
OF
EMERGING COMMUNICATIONS, INC.
* * * * *
The present name of the corporation is Emerging Communications, Inc. (the
"Corporation"). The corporation was incorporated under that name by the filing
of its original Certificate of Incorporation with the Secretary of State of
the State of Delaware on March 17, 1997. This Restated Certificate of
Incorporation of the Corporation, which both restates and further amends the
provisions of the Corporation's Certificate of Incorporation, was duly adopted
in accordance with the provisions of Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware. The Corporation's board of directors
(the "Board of Directors") adopted a resolution approving the following
amendments to and restatement of the Certificate of Incorporation of the
Corporation. The Certificate of Incorporation of the Corporation is hereby
amended and restated to read in its entirety as follows:
FIRST: The name of the Corporation is Emerging Communications, Inc.
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle, 19801. The name of its registered agent at such address
is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware. The Corporation is to have perpetual existence.
FOURTH: A. The total number of shares of all classes of stock that the
Corporation shall be authorized to issue is 50,000,000 shares, divided into
40,000,000 shares of Common Stock, par value $.01 per share (herein called
"Common Stock"), and 10,000,000 shares of Preferred Stock, par value $.01 per
share (herein called "Preferred Stock").
B. The Board of Directors is hereby expressly authorized, by resolution or
resolutions thereof, to provide, out of the unissued shares of Preferred
Stock, for series of Preferred Stock and, with respect to each such series, to
fix the number of shares constituting such series and the designation of such
series, the voting powers (if any) of the shares of such series, and the
preferences and relative, participating, optional or other special rights, if
any, and any qualifications, limitations or restrictions thereof, of the
shares of such series. The powers, preferences and relative, participating,
optional and other special rights of each series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.
C. Except as may otherwise be provided in this Restated Certificate of
Incorporation (including any certificate filed with the Secretary of State of
the State of Delaware establishing the terms of a series of Preferred Stock in
accordance with Section B of this Article FOURTH) or by applicable law, each
holder of Common Stock, as such, shall be entitled to one vote for each share
of Common Stock held of record by such holder on all matters on which
stockholders generally are entitled to vote, and no holder of any series of
Preferred Stock, as such, shall be entitled to any voting powers in respect
thereof. The number of authorized shares of Common Stock and Preferred Stock
may be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority in voting
power of the stock of the Corporation entitled to vote thereon irrespective of
the provisions of Section 242(b)(2) of the General Corporation Law of the
State of Delaware (or any successor provision thereto), and no vote of the
holders of either the Common Stock or the Preferred Stock voting separately as
a class shall be required therefor.
1
<PAGE>
D. Subject to applicable law and the rights, if any, of the holders of any
outstanding series of Preferred Stock, dividends may be declared and paid on
the Common Stock at such times and in such amounts as the Board of Directors
in its discretion shall determine.
E. Upon the dissolution, liquidation or winding up of the Corporation,
subject to the rights, if any, of the holders of any outstanding series of
Preferred Stock, the holders of the Common Stock shall be entitled to receive
the assets of the Corporation available for distribution to its stockholders
ratably in proportion to the number of shares held by them.
F. The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as expressly provided by applicable law.
FIFTH: A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, consisting of not less than
three nor more than fifteen directors, with the exact number of directors
constituting the entire Board of Directors to be determined from time to time
by resolution adopted by the affirmative vote of a majority of the entire
Board of Directors. For purposes of this Restated Certificate of
Incorporation, "the entire Board of Directors" shall mean the number of
directors that would be in office if there were no vacancies nor any unfilled
newly created directorships.
The Board of Directors shall be divided into three classes--Class I, Class
II and Class III. Each class shall consist, as nearly as may be possible, of
one-third of the number of directors constituting the entire Board of
Directors. Class I directors shall be initially elected for a term expiring at
the first succeeding annual meeting of stockholders following the
effectiveness of this Restated Certificate of Incorporation, Class II
directors shall be initially elected for a term expiring at the second
succeeding annual meeting of stockholders following the effectiveness of this
Restated Certificate of Incorporation, and Class III directors shall be
initially elected for a term expiring at the third succeeding annual meeting
of stockholders following the effectiveness of this Restated Certificate of
Incorporation. At each annual meeting of the stockholders following the
effectiveness of this Restated Certificate of Incorporation, successors to the
class of directors whose term expires at that annual meeting shall be elected
for a term expiring at the third succeeding annual meeting of stockholders. If
the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible, and any additional director of any
class elected to fill a newly created directorship resulting from an increase
in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case shall a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and
until his successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.
Any vacancy on the Board of Directors that results from an increase in the
number of directors may only be filled and any other vacancy occurring in the
Board of Directors may only be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Directors
chosen to fill any such vacancy shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to
which they have been elected expires and until such directors' successors
shall have been duly elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock shall have the right, voting separately as a class
or series, to elect directors, the election, removal, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation (including any certificate
filed with the Secretary of State of the State of Delaware establishing the
terms of a series of Preferred Stock in accordance with Section B of Article
FOURTH hereof) applicable thereto, and such directors so elected shall not be
divided into classes pursuant to this Article FIFTH unless expressly provided
by such terms.
2
<PAGE>
B. The Board of Directors shall be authorized to adopt, make, amend, alter,
change, add to or repeal the By-Laws of the corporation, subject to the power
of the stockholders to amend, alter, change, add to or repeal the By-Laws made
by the Board of Directors.
C. Unless and except to the extent that the By-Laws of the Corporation shall
so require, the election of the members of the Board of Directors need not be
by written ballot.
SIXTH: The Corporation does hereby elect not to be governed by the
provisions of Section 203 of the General Corporation Law of the State of
Delaware.
SEVENTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from
which the director derived an improper personal benefit.
EIGHTH: A. Each person who was or is a party or is threatened to be made a
party to, or is involved, in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or, while a
director or officer of the Corporation, is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent permitted by the laws of the State of
Delaware, as the same exists or may hereafter be amended, against all expense,
liability and loss (including attorneys' fees, judgments, amounts paid in
settlement, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) actually and reasonably incurred or suffered by such
person in connection therewith, and such indemnification shall continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of his or her heirs, executors and administrators.
Notwithstanding the preceding sentence, the Corporation shall be required to
indemnify an indemnitee in connection with a proceeding (or part thereof)
commenced by such indemnitee only if the commencement of such proceeding (or
part thereof) by the indemnitee was authorized by the Board of Directors of
the Corporation.
B. The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any expense, liability or
loss incurred by such person in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability.
C. Neither the amendment nor repeal of this Article EIGHTH, nor the adoption
of any provision of this Restated Certificate of Incorporation or the By-Laws
of the Corporation, nor, to the fullest extent permitted by the laws of the
State of Delaware, any modification of law, shall eliminate or reduce the
effect of this Article EIGHTH in respect of any acts or omissions occurring
prior to such amendment, repeal, adoption or modification.
NINTH: Meetings of stockholders may be held within or without the State of
Delaware as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the General Corporation Law of the
State of Delaware) outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors or in the By-
Laws of the Corporation.
3
<PAGE>
TENTH: Subject to the provisions of this Restated Certificate of
Incorporation and applicable law, the Corporation reserves the right at any
time and from time to time to amend, alter, change or repeal any provision
contained in this Restated Certificate of Incorporation, and any other
provisions authorized by the laws of the State of Delaware at the time in
force may be added or inserted, in the manner now or hereafter prescribed
herein or by applicable law, and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Restated Certificate of Incorporation in
its present form or as hereafter amended are granted subject to the right
reserved in this Article TENTH.
IN WITNESS WHEREOF, the undersigned has executed this Restated Certificate
of Incorporation this day of , 1997.
Emerging Communications, Inc.
By__________________________________:
Name:
Office:
4
<PAGE>
EXHIBIT E
TO
SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
----------------------------------------------
NON-COMPETITION AGREEMENT
----------------------------------------------
AMONG
EMERGING COMMUNICATIONS, INC.,
ATLANTIC TELE-NETWORK, INC.
AND
JEFFREY J. PROSSER
DATED [ ], 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS
<C> <S> <C>
Section 1.01. Definitions................................................ 1
ARTICLE II
AGREEMENT NOT TO COMPETE; DISCLOSURE OF INFORMATION
Section 2.01. Agreement Not To Compete................................... 2
Section 2.02. Disclosure of Information.................................. 2
ARTICLE III
MISCELLANEOUS PROVISIONS
Section 3.01. Remedies................................................... 3
Section 3.02. Benefits................................................... 3
Section 3.03. Severability; Blue Penciling............................... 3
Section 3.04. Notices.................................................... 3
Section 3.05. Complete Agreement; Amendments; Prior Agreements........... 4
Section 3.06. Governing Law.............................................. 4
Section 3.07. Counterparts............................................... 4
Section 3.08. Jurisdiction............................................... 4
Section 3.09. Expenses of Enforcement.................................... 4
</TABLE>
i
<PAGE>
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (this "Non-Competition Agreement") is entered
into as of the [ ] day of [ ], 1997 by and among Emerging
Communications, Inc., a Delaware corporation ("ECI"), Atlantic Tele-Network,
Inc., a Delaware corporation (the "Company"), and Jeffrey J. Prosser,
("Prosser").
WHEREAS, to eliminate corporate disputes and to maximize the value of the
Company for the benefit of the Company and its stockholders, the Company and
its co-chief executive officers and principal stockholders, Cornelius B.
Prior, Jr. ("Prior") and Prosser, entered into a Principal Terms Agreement
dated January 29, 1997 which contemplated the separation of the businesses and
assets of the Company; and
WHEREAS, in order to accomplish such separation, the Company and ECI entered
into a Subscription Agreement (the "Subscription Agreement"), the Company,
Prior and Prosser entered into a Recapitalization Agreement (the
"Recapitalization Agreement") and the Company and ATN MergerCo. entered into
an Agreement and Plan of Merger (the "Merger Agreement"), all dated as of
August 11, 1997;
WHEREAS, Prior and the other stockholders of the Company are relying on the
covenants of ECI and Prosser in this Non-Competition Agreement in making
and/or retaining their investments in the Common Stock of the Company; and
WHEREAS, the execution and delivery of this Non-Competition Agreement by the
parties hereto is contemplated by the Subscription Agreement and is a
condition to the Closing (as defined in the Subscription Agreement); and
WHEREAS, each of the parties hereto desires to consummate, and will secure
substantial benefits from the consummation of, the Closing.
NOW, THEREFORE, for and in consideration of the covenants herein contained
and subject to the conditions hereinafter set forth, the parties hereto agrees
as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Capitalized terms used in this Non-Competition
Agreement without definition shall have the respective meanings ascribed to
such terms in the Subscription Agreement. As used in this Agreement, the
following terms have the meanings assigned to them below:
"Competitive Business" means any business which competes anywhere in the
world in any material respect with the conduct of the Subject Business by
the Company or any of its Subsidiaries.
"Confidential Information" means all information of a proprietary nature
and documents or other tangible items that record information of a
proprietary nature relating to the Subject Business, including without
limitation, books, records, customer lists, vendor lists, supplier lists,
pricing information, cost information, plans, strategies, forecasts,
financial statistics, budgets and projections, other than any such
information which is generally within the public domain at the time of
receipt thereof by ECI or Prosser or at the time of use or disclosure of
such information by ECI or Prosser (other than as a result of the breach by
ECI or Prosser of its or his agreement hereunder).
"Subject Business" means the business of providing telecommunications
services (including carrying and/or terminating telecommunications
traffic), directly or indirectly through service bureaus or other
intermediaries, to persons who generate international audiotext
telecommunications traffic (whether voice or data); provided, however, that
the Subject Business shall not include the provision of any
telecommunications services as a common carrier which does not involve the
installation of special
1
<PAGE>
equipment to facilitate the generation of international audiotext
telecommunications traffic or, directly or indirectly, the payment of any
fee, commission or other compensation, through sharing of accounting or
settlement rates, rate discounts or otherwise to persons generating such
traffic.
ARTICLE II
AGREEMENT NOT TO COMPETE;
DISCLOSURE OF INFORMATION
Section 2.01. Agreement Not To Compete. (a) Each of ECI and Prosser
recognizes the highly competitive nature of the Subject Business and agrees
that the value and goodwill of the Company and its Subsidiaries would be
substantially impaired if it or he, as the case may be, failed to comply with
its or his obligations hereunder. Accordingly, each of ECI and Prosser hereby
agrees from the consummation of the Merger that during a period of ten years
thereafter, each of ECI and Prosser shall not, directly or indirectly, on its
or his own behalf, as the case may be, or on behalf of any other person or
entity:
(i) engage in any Competitive Business, whether such engagement shall be
as an employer, officer, director, owner, employee, partner, advisor,
consultant, stockholder, investor, agent or other participant in any
Competitive Business (or in any similar capacity in which it or he, as the
case may be, derives an economic benefit from a Competitive Business);
(ii) assist others in engaging in any Competitive Business in the manner
described in the foregoing clause (i);
(iii) solicit, entice or induce any director, employee, consultant or
other agent of the Company or any current or future Subsidiary of the
Company materially involved in the Subject Business to terminate his or her
employment or other relationship with the Company or such current or future
Subsidiary or to engage in any Competitive Business;
(iv) solicit, entice or induce any vendor or distributor of the Company
or any current or future Subsidiary materially involved in the Subject
Business to terminate or materially diminish its relationship with the
Company or such current or future Subsidiary; or
(v) solicit, entice or induce any subscriber or customer of the Company
or any current or future Subsidiary of the Company with respect to the
Subject Business to purchase the products or services of any Competitive
Business, or to cease purchasing the services of the Subject Business from
the Company or any current or future Subsidiary of the Company.
(b) Anything contained in this Non-Competition Agreement to the contrary
notwithstanding, no provision of this Agreement shall prohibit (i) ECI or
Prosser from owning, as a passive investment, in the aggregate less than 5% of
a class of publicly-traded securities issued by any person or entity engaged
in a Competitive Busi- ness or (ii) the provision of services by ATNCO,
VITELCo or VCI pursuant to terms of the Technical Assistance Agreement.
Section 2.02. Disclosure of Information. From and after the date hereof,
each of ECI and Prosser shall hold in strict confidence and shall not use or
disclose to any person, firm, corporation or other business entity, except as
required by law or judicial process, any Confidential Information for any
reason or purpose whatsoever, nor shall ECI or Prosser make use of any of the
Confidential Information for ECI's or Prosser's purposes or for the benefit of
any person or entity except the Company or any affiliate thereof.
Section 2.03. Acknowledgment. Prosser acknowledges that the provisions of
this Agreement are not designed to prevent Prosser from earning a living or
fostering his own career. The provisions of this Agreement are designed to
prevent any Competitive Business from gaining unfair advantage from Prosser's
and ECI's knowledge of confidential and proprietary information relating to
the Subject Business.
2
<PAGE>
ARTICLE III
MISCELLANEOUS PROVISIONS
Section 3.01. Remedies. Each of ECI and Prosser acknowledges that a remedy
at law for any breach or threatened breach of the provisions of this Non-
Competition Agreement would be inadequate and therefore agrees that the
Company shall be entitled to injunctive relief; provided, however, that
nothing contained herein shall be construed as prohibiting the Company from
pursuing any other remedies available for any such breach or threatened
breach.
Section 3.02. Benefits. This Non-Competition Agreement and the rights and
obligations of the parties hereto shall bind and inure to the benefit of any
successor or successors of the Company by reorganization, merger or
consolidation or otherwise and any assignee of all or substantially all of its
business and properties.
Section 3.03. Severability Blue Penciling. It is the desire and intent of
the parties hereto that the provisions of this Non-Competition Agreement shall
be enforced to the fullest extent permissible under the laws and public
policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Non-Competition Agreement
shall be adjudicated to be invalid or unenforceable, such provision shall be
deemed amended to delete therefrom the portion thus adjudicated to be invalid
or unenforceable, such deletion to apply only with respect to the operation of
such provision in the particular jurisdiction in which such adjudication is
made. In addition, if any one or more of the provisions contained in this Non-
Competition Agreement shall for any reason be held to be excessively broad as
to duration, geographical scope, activity or subject, it shall be construed by
limiting and reducing it so as to be enforceable to the extent compatible with
the applicable law as it shall then appear.
Section 3.04. Notices. All notices or other communications required or
permitted hereunder shall be in writing and sufficient if (a) delivered
personally, (b) sent by nationally-recognized overnight courier or (c) sent by
certified mail, postage prepaid, return receipt requested, addressed as
follows:
if to the Company, to:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
if to ECI or Prosser, to:
Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-7700
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
3
<PAGE>
or, in each case, to such other address as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.
Any such communication shall be deemed to have been given (i) when delivered,
if personally delivered, (ii) on the business day after dispatch, if sent by
nationally-recognized overnight courier and (iii) on the third business day
after dispatch, if sent by mail.
Section 3.05. Complete Agreement; Amendments; Prior Agreements. The
foregoing is the entire agreement of the parties with respect to the subject
matter hereof and may not be amended, supplemented, canceled or discharged
except by a written instrument executed by the parties hereto. This Non-
Competition Agreement supersedes any and all prior agreements among the
parties hereto with respect to the matters covered hereby.
Section 3.06. Governing Law. This Non-Competition Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and performed wholly therein.
Section 3.07. Counterparts. This Non-Competition Agreement may be executed
in any number of counterparts, and each such counterpart shall be deemed to be
an original instrument, but all such counterparts together shall constitute
but one agreement.
Section 3.08. Jurisdiction. Any action or proceeding brought by any party to
this Non-Competition Agreement against any other party hereto with respect to
the enforcement or breach of this Non-Competition Agreement may be brought in
the courts of the State of New York or of the United States for the Southern
District of New York. Each of the parties hereto irrevocably submits to the
jurisdiction of each such court in respect of any such action or proceeding,
irrevocably waives any objection that it may now or hereafter have to the
laying of venue of any such action or proceeding in any such court and any
claim that any such action or proceeding brought in any such court has been
brought in an inconvenient forum, and irrevocably consents that service of
process or other legal summons for purposes of any such action or proceeding
may be served on it by personal service within or without the State of New
York or by mailing a copy thereof by registered mail, or a form of mail
substantially equivalent to registered mail, addressed to such party at its
address as provided for notices hereunder.
Section 3.09. Expenses of Enforcement. In the event of any breach of this
Non-Competition Agreement by any party hereto, any other party hereto which is
aggrieved by such breach (an "Aggrieved Breach") shall be entitled to recover
from the party in breach, any and all costs and expenses, including without
limitation reasonable attorneys' fees, incurred by the Aggrieved Party as a
result of such breach or in connection with enforcing the provisions of this
Non-Competition Agreement with respect to such breach.
4
<PAGE>
IN WITNESS WHEREOF, this Non-Competition Agreement has been executed and
delivered by the parties hereto as of the date first above written.
Atlantic Tele-Network, Inc.
By: _________________________________
Name:
Title:
Emerging Communications, Inc.
By: _________________________________
Name:
Title:
-------------------------------------
Jeffrey J. Prosser
5
<PAGE>
EXHIBIT F
TO
SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-----------------------------------
INDEMNITY AGREEMENT
-----------------------------------
AMONG
ATLANTIC TELE-NETWORK, INC.,
EMERGING COMMUNICATIONS, INC.,
CORNELIUS B. PRIOR, JR.
AND
JEFFREY J. PROSSER
DATED [ ], 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
DEFINITIONS
<C> <S> <C>
Section 1.01. Definitions................................................ 1
ARTICLE II
INDEMNIFICATION
Section 2.01. Indemnification by Prosser................................. 1
Section 2.02. Indemnification by Prior................................... 1
Section 2.03. Indemnification by ECI..................................... 2
Section 2.04. Indemnification by the Company............................. 2
Section 2.05. No Third Party Rights...................................... 2
Section 2.06. Indemnification Procedures................................. 2
ARTICLE III
FORBEARANCE; STANDSTILL
Section 3.01. Forbearance................................................ 4
Section 3.02. Standstill................................................. 4
ARTICLE IV
MISCELLANEOUS PROVISIONS
Section 4.01. Effectiveness.............................................. 5
Section 4.02. Entire Agreement........................................... 5
Section 4.03. Governing Law.............................................. 5
Section 4.04. Headings................................................... 5
Section 4.05. Counterparts............................................... 5
Section 4.06. Benefits................................................... 5
Section 4.07. Assignment................................................. 5
Section 4.08. Amendment and Waiver....................................... 5
Section 4.09. Notices.................................................... 5
Section 4.10. Jurisdiction............................................... 6
Section 4.11. Expenses of Enforcement.................................... 6
</TABLE>
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<PAGE>
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (this ("Indemnity Agreement") is entered into as of
the [ ] day of [ ], 1997 by and among Atlantic Tele-Network, Inc., a
Delaware corporation (the "Company"), Emerging Communications, Inc., a
Delaware corporation ("ECI"), Cornelius B. Prior, Jr. ("Prior") and Jeffrey J.
Prosser ("Prosser").
WHEREAS, the execution and delivery of this Indemnity Agreement by the
parties hereto is contemplated by the Subscription Agreement dated as of
August 11, 1997 (the "Subscription Agreement") between the Company and ECI and
is a condition to the Closing (as defined in the Subscription Agreement); and
WHEREAS, each of the parties hereto desires to consummate, and will receive
substantial benefits from the consummation of, the Closing.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained and subject to the conditions hereinafter set
forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Capitalized terms used in this Indemnity
Agreement without definition shall have the respective meanings ascribed to
such terms in the Subscription Agreement.
"Affiliate" of any person shall mean any other person which controls, is
controlled by, or is under common control with such person, and "person" for
purposes hereof means and includes any individual, partnership, limited
liability company, firm, corporation or other entity.
ARTICLE II
INDEMNIFICATION
Section 2.01. Indemnification by Prosser. Subject to the terms and
conditions contained herein, Prosser hereby agrees to indemnify and hold
harmless the Company, its Subsidiaries after the Closing, their respective
officers, directors and agents and Prior, individually and as Trustee of the
1994 Prior Charitable Remainder Trust, from and against any and all losses,
liabilities, damages, costs, and expenses (including, without limitation,
reasonable attorney's fees and any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending any action, suit or
proceeding, commenced or threatened) of any kind and nature (collectively,
"Losses") (A) which relate to or arise out of any action, suit or proceeding
brought by or on behalf of any stockholder of the Company or ECI arising out
of or relating to (i) the repurchase by the Company of shares of Company
Common Stock owned by Prior and/or the Trust pursuant to the Recapitalization
Agreement or (ii) the number of shares of ECI Common Stock to be received by
Prosser pursuant to the Merger Agreement, or (B) which relate to or arise out
of any action, suit or proceeding arising out of relating to an untrue
statement of a material fact or alleged untrue statement of a material fact
contained in the proxy statement/prospectus to be delivered to holders of
Company Common Stock (the "Proxy Statement") or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with respect
to the beneficial ownership of stock of the Company by Prosser and/or members
of his family and his or their Affiliates and biographical information with
respect to Mr. Prosser.
Section 2.02. Indemnification by Prior. Subject to the terms and conditions
contained herein, Prior hereby agrees to indemnify and hold harmless ECI, the
entities which will become its Subsidiaries after the Closing, their
respective officers, directors and agents and Prosser from and against any and
all Losses (A) which
1
<PAGE>
relate to or arise out of any action, suit or proceeding brought by or on
behalf of any stockholder of the Company or ECI arising out of or relating to
the number of shares of Surviving Corporation Common Stock (as defined in the
Merger Agreement) to be received by Prior pursuant to the Merger Agreement or
(B) an untrue statement of a material fact or alleged untrue statement of a
material fact contained in the Proxy Statement or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with respect
to the beneficial ownership of stock of the Company by Prior and/or members of
his family and his or their Affiliates and biographical information with
respect to Mr. Prior.
Section 2.03. Indemnification by ECI. Subject to the terms and conditions
contained herein, ECI hereby agrees to indemnify and hold harmless the
Company, its Subsidiaries after the Closing, their respective officers,
directors and agents and Prior from and against any and all Losses which
relate to or arise out of, (i) the business or operations conducted by ECI and
the Transferred Subsidiaries before or after the Closing, or any other
Subsidiaries of ECI after the Closing, (ii) the Assumed Liabilities or (iii)
any action, suit or proceeding arising out of or relating to an untrue
statement of a material fact or alleged untrue statement of a material fact
contained in the Proxy Statement or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with respect to (a) the business,
prospects or planned or proposed activities of ECI and its Subsidiaries after
the Closing Date, (b) activities of ECI or the Transferred Subsidiaries after
April 30, 1997 and (c) prospective acquisitions of businesses or other
transactions not in the ordinary course of business planned or contemplated by
ECI, the Transferred Subsidiaries or Prosser.
Section 2.04. Indemnication by the Company. Subject to the terms and
conditions contained herein, the Company hereby agrees to indemnify and hold
harmless ECI, the entities which will become its Subsidiaries after the
Closing, their respective officers, directors and agents and Prosser from and
against any and all Losses which relate to or arise out of (i) the business
and operations conducted by GTT before or after the Closing or the business
and operations after the Closing of the Company or any other entity which will
be a Subsidiary of the Company after the Closing, (ii) the Excluded
Liabilities or (iii) any action, suit or proceeding arising out of or relating
to an untrue statement of a material fact or alleged untrue statement of a
material fact contained in the Proxy Statement or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with respect
to (a) the business, prospects or planned or proposed activities of the
Company and its Subsidiaries after the Closing Date, (b) activities of GTT and
the Company with respect to GTT after April 30, 1997 and (c) prospective
acquisitions of businesses or other transactions not in the ordinary course of
business planned or contemplated by GTT or Prior.
Section 2.05. No Third Party Rights. Nothing in this Indemnity Agreement,
express or implied, is intended or shall be construed to give to any person,
firm or corporation, other than an Indemnified Party (as defined below), any
rights, remedy, claim or cause of action under or by reason of this Indemnity
Agreement, or any terms, covenants or conditions hereof.
Section 2.06. Indemnification Procedures. (a) If any party or person which
may seek indemnification hereunder (an "Indemnified Party") determines that it
is or may be entitled to indemnification by any party hereto (an "Indemnifying
Party") under this Agreement (other than in connection with any Third Party
Claim (as defined below) subject to clause (b) of this Section 2.06), the
Indemnified Party shall deliver to the Indemnifying Party a written notice
specifying, to the extent reasonably practicable, the basis for its claim for
indemnification and the amount for which the Indemnified Party reasonably
believes it is entitled to be indemnified. After the Indemnifying Party shall
have been notified of the amount for which the Indemnified Party seeks
indemnification, the Indemnifying Party shall, within 30 days after receipt of
such notice, pay the Indemnified Party such amount in cash or other
immediately available funds (or reach agreement with the Indemnified Party as
to a mutually agreeable alternative payment schedule) unless the Indemnifying
Party objects to the claim for indemnification or the amount thereof. If the
Indemnifying Party does not give the Indemnified Party written notice
objecting to such claim and setting forth the grounds therefor within the same
30 day period, the Indemnifying Party shall be deemed to have acknowledged its
liability for such claim and the Indemnified Party may exercise any and all of
its rights under applicable law to collect such amount.
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<PAGE>
(b) Promptly following the earlier of (i) receipt of notice of the
commencement by a third party of any action, suit or proceeding against or
otherwise involving any Indemnified Party or (ii) receipt of information from
a third party alleging the existence of a claim against an Indemnified Party,
in either case, with respect to which indemnification may be sought pursuant
to this Indemnity Agreement (a "Third-Party Claim"), the Indemnified Party
shall give the Indemnifying Party prompt written notice thereof. The failure
of the Indemnified Party to give notice as provided in this clause (b) shall
not relieve the Indemnifying Party of its obligations under this Indemnity
Agreement, except to the extent that the Indemnifying Party is materially
prejudiced by such failure to give notice. Within 30 days after receipt of
such notice, the Indemnifying Party may (i) by giving written notice thereof
to the Indemnified Party, acknowledge liability for and at its option elect to
assume the defense of such Third-Party Claim at its sole cost and expense or
(ii) object to the claim of indemnification set forth in the notice delivered
by the Indemnified Party pursuant to the first sentence of this clause (b);
provided that if the Indemnifying Party does not within the same 30 day period
give the Indemnified Party written notice objecting to such claim and setting
forth the grounds therefor or electing to assume the defense, the Indemnifying
Party shall be deemed to have acknowledged its liability for such Third-Party
Claim. Any contest of a Third-Party Claim as to which the Indemnifying Party
has elected to assume the defense shall be conducted by attorneys employed by
the Indemnifying Party and reasonably satisfactory to the Indemnified Party,
and the Indemnifying Party shall not be liable to the Indemnified Party for
any legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation, except as provided in the following sentence. The Indemnified
Party shall have the right to participate in the defense against the Third
Party Claim and to be represented by attorneys of its own choosing, but the
fees and expenses of such attorneys shall be at the expense of the Indemnified
Party unless (i) the Indemnifying Party and the Indemnified Party shall have
mutually agreed to the retention of such attorneys by the Indemnified Party or
(ii) representation of both parties by the same counsel in respect of such
Third Party Claim would be inappropriate due to actual or potential differing
interests between them (in which case the Indemnifying Party shall not be
entitled to assume or direct the defense of such proceeding on behalf of the
Indemnified Party); provided that in no event shall the Indemnifying Party be
required to pay the fees and expenses of more than one separate counsel (in
addition to local counsel) in any one proceeding representing the Indemnified
Parties who are parties thereto. If the Indemnifying Party assumes the defense
of a Third-Party Claim, the Indemnifying Party may settle or compromise the
claim without the prior written consent of the Indemnified Party; provided
that without the prior written consent of the Indemnified Party, which consent
shall not be unreasonably withheld, the Indemnifying Party may not agree to
any such settlement or compromise unless such settlement or compromise
includes an unconditional release of the Indemnified Party from all liability
on claims that are or could be the subject matter of such proceeding. If the
Indemnifying Party does not assume the defense of a Third-Party Claim for
which it has acknowledged liability for indemnification as described herein,
the Indemnified Party may require the Indemnifying Party to reimburse it on a
current basis for its reasonable expenses of investigation, reasonable
attorney's fees and reasonable out-of-pocket expenses incurred in defending
against such Third-Party Claim and the Indemnifying Party shall be bound by
the result obtained with respect thereto by the Indemnified Party; provided
that the Indemnifying Party shall not be liable for any settlement effected
without its consent, which consent shall not be unreasonably withheld. The
Indemnifying Party shall pay to the Indemnified Party in cash the amount for
which the Indemnified Party is entitled to be indemnified (if any) within 15
days after the final resolution of such Third-Party Claim (whether by the
final nonappealable judgment of a court of competent jurisdiction or
otherwise) or, in the case of any Third-Party Claim as to which the
Indemnifying Party has not acknowledged liability, within 15 days after such
Indemnifying Party's objection has been resolved by settlement, compromise or
the final nonappealable judgment of a court of competent jurisdiction.
(c) This Section 2.06 shall have no applicability to any claim for
indemnification with respect to any income, gross income, gross receipts,
profits, capital stock, franchise, withholding, payroll, social security,
workers compensation, unemployment, disability, property, ad valorem, stamp,
excise, severance, occupation, service, sales, use, license, lease, transfer,
import, export, value added, alternative minimum, estimated or other similar
tax (including any fee, assessment, or other charge in the nature of or in
lieu of any tax) imposed by any governmental entity or political subdivision
thereof, and any interest, penalties, additions to tax, or additional amounts
in respect of the foregoing (collectively "Taxes"), it being understood that
the procedures for
3
<PAGE>
indemnification with respect to Taxes are covered in that separate Tax Sharing
and Indemnification Agreement dated the date hereof among the parties hereto.
ARTICLE III
FORBEARANCE; STANDSTILL
Section 3.01. Forbearance. Except with respect to enforcing specific
provisions of an agreement entered into in connection with the Transactions,
including, without limitation, this Indemnity Agreement, (a) Prosser and ECI
hereby agree not to bring any action, suit or proceeding against Prior or the
Company with respect to any of the matters constituting the Transactions, or
arising out or relating to the business, operations or management of the
Company or any of its Subsidiaries prior to and including the Closing and (b)
Prior and the Company hereby agree not to bring any action, suit or proceeding
against Prosser or ECI with respect to any of the matters constituting the
Transactions or arising out of or relating to the business, operations or
management of the Company or any of its Subsidiaries prior to and including
the Closing.
Section 3.02. Standstill.
(a) Each of Prosser and ECI agrees that for a period of ten years after the
Closing Date, he or it, as the case may be, shall not, and shall not permit
his or its, as the case may be, Controlled Affiliates (as defined below) to,
without the prior written consent of the Company, duly authorized by its Board
of Directors:
(i) be the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of greater than 5% of the outstanding Voting Securities (as
defined below) of the Company; or offer or agree to purchase any Voting
Securities of the Company if, after giving effect to such purchase, he or
it, as the case may be, would be the beneficial owner of greater than 5% of
the outstanding Voting Securities of the Company; or
(ii) make, or in any way participate in, any "solicitation" of "proxies"
(as such terms are defined in Rule 14a-1 under the Exchange Act) with
respect to Voting Securities of the Company; become a participant in any
"election contest" (within the meaning of Rule 14a-11 of the Exchange Act)
with respect to the Company; seek to advise or influence any person with
respect to the voting of any Voting Securities of the Company; execute any
written consent in lieu of a meeting of holders of any class or series of
Voting Securities of the Company; or initiate, propose or otherwise solicit
holders of Voting Securities of the Company for the approval or rejection
of a proposal for a vote of holders of Voting Securities of the Company.
(b) Each of Prior and the Company agrees that for a period of ten years
after the Closing Date, he or it, as the case may be, shall not, and shall not
permit his or its, as the case may be, Controlled Affiliates (as defined
below) to, without the prior written consent of ECI, duly authorized by its
Board of Directors:
(i) be the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of greater than 5% of the outstanding Voting Securities (as
defined below) of ECI; or offer or agree to purchase any Voting Securities
of ECI if, after giving effect to such purchase, he or it, as the case may
be, would be the beneficial owner of greater than 5% of the outstanding
Voting Securities of ECI; or
(ii) make, or in any way participate in, any "solicitation" of "proxies"
(as such terms are defined in Rule 14a-1 under the Exchange Act) with
respect to Voting Securities of ECI; become a participant in any "election
contest" (within the meaning of Rule 14a-11 of the Exchange Act) with
respect to ECI; seek to advise or influence any person with respect to the
voting of any Voting Securities of ECI; execute any written consent in lieu
of a meeting of holders of any class or series of Voting Securities of ECI;
or initiate, propose or otherwise solicit holders of Voting Securities of
ECI for the approval or rejection of a proposal for a vote of holders of
Voting Securities of ECI.
(c) As used in this Section 3.02, the following terms have the meanings
assigned to them below:
4
<PAGE>
"Controlled Affiliate" of any person means any other person under the
control of such person. As used in this definition, "control" means the
possession, direct or indirect, of the power to direct or cause the direction
of the management and policies of a person, whether through ownership of
Voting Securities, by contract or otherwise.
"Voting Securities" of any person means securities, the holders of which
are, at the applicable time in question, entitled to vote for the election of
directors of such person.
ARTICLE IV
MISCELLANEOUS PROVISIONS
Section 4.01. Effectiveness. This Indemnity Agreement shall become operative
upon consummation of the Merger.
Section 4.02. Entire Agreement. This Indemnity Agreement, together with all
other written agreements which may be entered into between the parties in
connection herewith and the transactions contemplated hereby and all other
documents and instruments delivered in connection herewith and therewith and
the transactions contemplated hereby and thereby, set forth the full and
complete understanding of the parties hereto with respect to the transactions
contemplated hereby.
Section 4.03. Governing Law. This Indemnity Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
reference to the conflict of laws rules thereof.
Section 4.04. Headings. The headings in this Indemnity Agreement are
intended solely for convenience of reference and shall be given no effect in
the interpretation of this Indemnity Agreement.
Section 4.05. Counterparts. This Indemnity Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument.
Section 4.06. Benefits. This Indemnity Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns, and no other person (other than an Indemnified Party) will have any
right or obligation hereunder.
Section 4.07. Assignment. Neither this Indemnity Agreement nor any right
hereunder may be assigned by the parties hereto without the prior written
consent of the other parties. Subject to the foregoing, this Indemnity
Agreement shall be binding upon and inure to the benefit of the successors,
heirs, representatives and assigns of each party hereto.
Section 4.08. Amendment and Waiver. This Indemnity Agreement may be amended
only by an instrument in writing signed on behalf of each of the parties
hereto. Any term, condition or provision of this Indemnity Agreement may be
waived (if in writing) at any time by the party or each of the parties
entitled to the benefits thereof.
Section 4.09. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
given if delivered by hand, or when sent by telex or telecopier (with
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<PAGE>
receipt confirmed) or by registered mail, return receipt requested, addressed
as follows (or to such other address as a party may designate by notice to the
other):
(a) If to the Company or Prior:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
with copies to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
(b) If to ECI or Prosser:
Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-8000
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
Section 4.10. Jurisdiction. Any action or proceeding brought by any party to
this Indemnity Agreement against any other party hereto with respect to the
enforcement or breach of this Indemnity Agreement may be brought in the courts
of the State of New York or of the United States for the Southern District of
New York. Each of the parties hereto irrevocably submits to the jurisdiction
of each such court in respect of any such action or proceeding, irrevocably
waives any objection that it may now or hereafter have to the laying of venue
of any such action or proceeding in any such court and any claim that any such
action or proceeding brought in any such court has been brought in an
inconvenient forum, and irrevocably consents that service of process or other
legal summons for purposes of any such action or proceeding may be served on
it by personal service within or without the State of New York or by mailing a
copy thereof by registered mail, or a form of mail substantially equivalent to
registered mail, addressed to such party at its address as provided for
notices hereunder.
Section 4.11. Expenses of Enforcement. In the event of any breach of this
Indemnity Agreement by any party hereto, any other party hereto which is
aggrieved by such breach (an "Aggrieved Party") shall be entitled to recover
from the party in breach, any and all costs and expenses, including without
limitation reasonable attorneys fees, incurred by the Aggrieved party as a
result of such breach or in connection with enforcing the provisions of this
Indemnity Agreement with respect to such breach.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Indemnity
Agreement to be duly executed, all as of the date first written above.
Atlantic Tele-Network, Inc.
By: _________________________________
Name: Cornelius B. Prior
Title: Co-Chief Executive Officer
By: _________________________________
Name: Jeffrey J. Prosser
Title: Co-Chief Executive Officer
Emerging Communications, Inc.
By: _________________________________
Name:
Title:
_____________________________________
Cornelius B. Prior, Jr.
_____________________________________
Jeffrey J. Prosser
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<PAGE>
EXHIBIT G
TO
SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-------------------------------
EMPLOYEE BENEFITS AGREEMENT
-------------------------------
BETWEEN
EMERGING COMMUNICATIONS, INC.,
AND
ATLANTIC TELE-NETWORK, INC.
DATED [ ], 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EMPLOYEE BENEFITS AGREEMENT
THIS EMPLOYEE BENEFITS AGREEMENT (this "Employee Benefits Agreement") is
entered into as of the [ ] day of [ ] 1997 by and between Emerging
Communications, Inc., a Delaware Corporation (the "ECI"), and Atlantic Tele-
Network, Inc., a Delaware corporation (the "Company" or "ATNI").
WHEREAS, to eliminate corporation disputes and to maximize the value of the
Company for the benefit of the Company and its stockholders, the Company, and
its co-chief executive officers and principal stockholders, Cornelius B.
Prior, Jr. ("Prior") and Jeffrey J. Prosser ("Prosser"), entered into a
Principal Terms Agreement dated January 29, 1997 which contemplated the
separation of the businesses and assets of the Company; and
WHEREAS, in order to accomplish such separation, the Company and New ATN
entered into a Subscription Agreement (the "Subscription Agreement"), the
Company, Prior and Prosser entered into a Recapitalization Agreement (the
"Recapitalization Agreement") and the Company and ATN MergerCo. entered into
an Agreement and Plan of Merger (the "Merger Agreement"), all dated as of
August 11, 1997;
WHEREAS, the execution and delivery of this Employee Benefits Agreement by
the parties hereto is contemplated by the Subscription Agreement and is a
condition to the Closing (as defined in the Subscription Agreement); and
WHEREAS, each of the parties hereto desires to consummate, and will secure
substantial benefits from the consummation of, the Closing.
NOW, THEREFORE, for and in consideration of the covenants herein contained
and subject to the conditions hereinafter set forth, the parties hereto agree
as follows:
1. Effective as of the Closing, (i) ECI shall adopt as its own the Atlantic
Tele-Network, Inc. Defined Benefit Plan for Salaried Employees, the Atlantic
Tele-Network, Inc. Management Employees' Savings Plan, and the Atlantic Tele-
Network, Inc. Employees' Stock Ownership Plan (collectively, the "ATNI
Plans"), (ii) each of the trusts (and all assets thereof) forming a part of
the ATNI Plans shall be assumed by ECI, and (iii) ECI and the Company shall
take such action, including amendments to the ATNI Plans (or the trusts
forming a part thereof), as is necessary in order for ECI to be the sponsor
and "Employer" under such ATNI Plans. As of the Closing, employees of the
Company and its subsidiaries shall cease participation in the ATNI Plans
maintained by ECI or any of its subsidiaries.
2. All other employee benefit plans maintained by ATN Co., a U.S. Virgin
Islands corporation ("ATNC"), by Virgin Islands Telephone Corp., a U.S. Virgin
Islands corporation ("Vitelco") or by any of their subsidiaries (the
"ATNC/Vitelco Plans"), including but not limited to the Virgin Islands
Telephone Corporation Pension Plan for Hourly Employees, the United
Steelworkers of America 401(k) Plan for Bargaining Unit Employees of Vitelco,
the Welfare Plan for Salaried Employees and the Welfare Plan for Bargaining
Employees, shall continue to be sponsored by such entities after the Closing.
As of the Closing, employees of the Company and its subsidiaries shall cease
participation in the ATNC/Vitelco Plans maintained by ECI, ATNC, Vitelco or
any of their subsidiaries.
3. Effective as of the Closing, ECI and its subsidiaries shall assume all
employment-related liabilities and obligations of ATNI toward those employees
who prior to the Closing were employed by ATNI and who after the Closing will
be employed by ECI or its subsidiaries. Such employment-related liabilities
and obligations shall include, but are not limited to, liabilities and
obligations with respect to wages, withholding taxes, benefits, accrued
vacation, employee benefit plan contributions and administrative expenses,
whether incurred or accrued before, on or after the Closing and whether or not
reported as of the Closing.
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4. All notices or other communications required or permitted hereunder shall
be in writing and sufficient if (a) delivered personally, (b) sent by
nationally-recognized overnight courier or (c) sent by certified mail, postage
prepaid, return receipt requested, addressed as follows:
if to the Company, to:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 6100
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: [(809) 774-7790]
if to ECI, to:
Emerging Communications, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-7700
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
with copies to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
or, in each case, to such other address as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.
Any such communication shall be deemed to have been given (i) when delivered,
if personally delivered, (ii) on the business day after dispatch, if sent by
nationally-recognized overnight courier and (iii) on the third business day
after dispatch, if sent by mail.
5. The foregoing is the entire agreement of the parties with respect to the
subject matter hereof and may not be amended, supplemented, canceled or
discharged except by a written instrument executed by the parties hereto. This
Employee Benefits Agreement supersedes any and all prior agreements among the
parties hereto with respect to the matters covered hereby.
6. This Employee Benefits Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and performed wholly therein.
7. This Employee Benefits Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8. Any action or proceeding brought by any party to this Employee Benefits
Agreement against any other party hereto with respect to the enforcement or
breach of this Employee Benefits may be brought in the courts of the State of
New York or of the United States for the Southern District of New York. Each
of the parties hereto irrevocably submits to the jurisdiction of each such
court in respect of any such action or proceeding, irrevocably waives any
objection that it may now or hereafter have to the laying of venue of any such
action or proceeding
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in any such court and any claim that any such action or proceeding brought in
any such court has been brought in an inconvenient forum, and irrevocably
consents that service of process or other legal summons for purposes of any
such action or proceeding may be served on it by personal service within or
without the State of New York or by mailing a copy thereof by registered mail,
or a form of mail substantially equivalent to registered mail, addressed to
such party at its address as provided for notices hereunder.
9. In the event of any breach of this Employee Benefits Agreement by any
party hereto, any other party hereto which is aggrieved by such breach (an
"Aggrieved Breach") shall be entitled to recover from the party in breach, any
and all costs and expenses, including without limitation reasonable attorneys'
fees, incurred by the Aggrieved Party as a result of such breach or in
connection with enforcing the provisions of this Non-Competition Agreement
with respect to such breach.
IN WITNESS WHEREOF, this Employee Benefits Agreement has been executed and
delivered by the parties hereto as of the date first above written.
Atlantic Tele-Network, Inc.
By:__________________________________
Name:
Title:
Emerging Communications, Inc.
By:__________________________________
Name:
Title:
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EXHIBIT H
TO
SUBSCRIPTION AGREEMENT
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---------------------------------
TAX SHARING AND INDEMNIFICATION AGREEMENT
---------------------------------
AMONG
ATLANTIC TELE-NETWORK, INC.,
EMERGING COMMUNICATIONS, INC.,
CORNELIUS B. PRIOR
AND
JEFFREY J. PROSSER
DATED [ ], 1997
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<PAGE>
TAX SHARING AND INDEMNIFICATION AGREEMENT
This Tax Sharing and Indemnification Agreement is entered into as of [ ],
1997 by and among Atlantic Tele-Network, Inc., a Delaware corporation ("ATN"),
Emerging Communications, Inc., a Delaware corporation ("ECI"), Cornelius B.
Prior, Jr. ("Prior") and Jeffrey J. Prosser ("Prosser"). Capitalized terms
used in this Agreement are defined in Section 1 below. Unless otherwise
indicated, all "Section" references in this Agreement are to sections of this
Agreement.
RECITALS
WHEREAS, as of the date hereof ATN is the common parent of an affiliated
group of corporations, including ECI and Atlantic Aircraft, Inc., a Delaware
corporation ("Aircraft Corp."), which has elected to file consolidated Federal
and combined Delaware income tax returns; and
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is contemplated by the Subscription Agreement dated as of August 11, 1997 (the
"Subscription Agreement") between ATN and ECI and is a condition to the
Closing (as defined in the Subscription Agreement); and
WHEREAS, as a result of the Transactions, ECI and Aircraft Corp. will cease
to be members of the affiliated group of which ATN is the common parent as of
the end of the day which is the Closing Date; and
WHEREAS, ATN, ECI, Prior and Prosser desire to provide for and agree upon
the allocation among them of liabilities for Taxes arising prior to and as a
result of the Transactions, and to provide for and agree upon other matters
relating to Taxes;
NOW THEREFORE, in consideration of the mutual agreements contained herein,
ATN, ECI, Prior and Prosser hereby agree as follows:
Section 1. Definition of Terms. For purposes of this Agreement (including
the recitals hereof), the following terms have the following meanings:
"ACCOUNTING CUTOFF DATE" means, with respect to each of ATN and ECI, any
date as of the end of which there is a closing of the financial accounting
records for such entity.
"ACCOUNTING FIRM" shall have the meaning provided in Section 15.
"AFFILIATE" means any entity that directly or indirectly "controls" or is
"controlled" by the person or entity in question. "Control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person, whether through
ownership of voting securities, by contract or otherwise.
"AGREEMENT" means this Tax Sharing and Indemnification Agreement.
"ATN GROUP" means ATN and its Affiliates as determined immediately after the
Transactions.
"CLOSING" means the Closing as that term is defined in the Subscription
Agreement.
"CLOSING DATE" means the Closing Date as that term is defined in the
Subscription Agreement.
"CODE" means the U.S. Internal Revenue Code of 1986, as amended, or any
successor law.
"COMPANIES" means ATN and ECI and "Company" means either ATN or ECI.
"DEBITS" shall have the meaning ascribed to it in the Subscription
Agreement.
"DISTRIBUTION" means the distribution to certain ATN shareholders on the
Closing Date of all of the outstanding stock of ECI owned by ATN.
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"ECI GROUP" means ECI and its Affiliates as determined immediately after the
Transactions.
"FEDERAL INCOME TAX" means any Tax imposed by Subtitle A of the Code, or to
the extent related to such Tax, any Tax imposed by Subtitle F of the Code.
"FINAL CLOSING ADJUSTMENT" shall have the meaning ascribed to it in the
Subscription Agreement.
"FINAL DETERMINATION" means the final resolution of any Tax liability for a
Tax Period, including any related interest or penalties, by (i) a decision of
the Tax Court or judgment, decree, or other order by a court of competent
jurisdiction, which has become final and unappealable; (ii) IRS Form 870-AD
(or any successor forms thereto), on the date of acceptance by or on behalf of
the Internal Revenue Service, or by a comparable agreement form under other
applicable Tax Laws; except that a Form 870-AD or comparable form that by its
terms reserves the right of the taxpayer to file a claim for refund and/or the
right of the Tax Authority to assert a further deficiency shall not constitute
a final determination; (iii) a closing agreement under Section 7121 of the
Code or under corresponding provisions of any subsequently enacted federal Tax
Laws, or comparable agreements under other applicable Tax Laws; and (iv) any
other final disposition by reason of the expiration of the applicable statute
of limitations.
"FOREIGN INCOME TAX" means any Tax imposed by any foreign country or any
territory or possession of the United States, or by any political subdivision
of any foreign country or United States territory or possession, which is an
income tax as defined in Treasury Regulation Section 1.901-2.
"GROUP" means the ATN Group or the ECI Group, as the context requires.
"GT&T" means Guyana Telephone & Telegraph Company Limited, a Guyana
corporation.
"INCOME TAX" means any Federal Income Tax, State Income Tax, or Foreign
Income Tax.
"INTERCOMPANY TAX ALLOCATION AGREEMENTS" means any written or oral agreement
or any other arrangements relating to allocation of Taxes existing between ATN
and Aircraft Corp. or any other member of the ECI Group in effect as of the
Closing Date (other than this Agreement).
"LETTER REQUEST" means the letter filed by ATN with the Internal Revenue
Service requesting a ruling from the Internal Revenue Service regarding
certain tax consequences of the Transactions, including the job descriptions
of certain officers and employees of ATN attached as Exhibit 9 to such letter
and the Revenue Procedure 96-30 Checklist attached as Exhibit 1 to such letter
and any amendment or supplement to such letter or such exhibits.
"PAYMENT DATE" means (i) with respect to any Tax Return relating to Federal
Income Taxes, the due date for any required installment of estimated taxes
determined under Code Section 6655, the due date (determined without regard to
extensions) for filing the Tax Return determined under Code Section 6072, and
the date the Tax Return is filed, and (ii) with respect to any Tax Return
relating to other Taxes, the corresponding dates determined under the
applicable Tax Law.
"PERMITTED PLEDGE" means a bona fide pledge of stock or securities of ATN or
ECI by Prior or Prosser to a bank or brokerage firm as collateral for a full
recourse loan to Prior or Prosser.
"POST-DISTRIBUTION PERIOD" means any Tax Period beginning after the Closing
Date, and, in the case of any Straddle Period, the portion of such Straddle
Period beginning the day after the Closing Date.
"PRE-DISTRIBUTION PERIOD" means any Tax Period ending on or before the
Closing Date, and, in the case of any Straddle Period, the portion of such
Straddle Period ending on the Closing Date.
"PRIME RATE" means the base rate on corporate loans charged by Citibank,
N.A., New York, New York from time to time, compounded daily on the basis of a
year of 365 or 366 (as applicable) days and actual days elapsed.
"REPURCHASE AND RECAPITALIZATION AGREEMENT" means that certain repurchase
and recapitalization agreement dated as of August 11, 1997 by and among ATN,
Prior, individually and as Trustee of the 1994 Prior Charitable Remainder
Trust, and Prosser.
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"RESPONSIBLE COMPANY" means, with respect to any Tax Return, the Company
having responsibility for preparing and filing such Tax Return under this
Agreement.
"RESTRUCTURING TAX" means any Taxes resulting from any income or gain
recognized as a result of the Transactions including, without limitation, any
Taxes resulting from any income or gain recognized as a result of the
Transactions failing to qualify for tax-free treatment under Code Sections 355
or 361 or other provisions of the Code (as contemplated by the Ruling Request)
and any Taxes resulting from any income or gain recognized under Treasury
Regulations Section 1.1502-13 or 1.1502-19 (or any corresponding provisions of
other applicable Tax Laws) as a result of the Transactions.
"RULING REQUEST" means the letter filed by ATN with the Internal Revenue
Service requesting a ruling from the Internal Revenue Service regarding
certain tax consequences of the Transactions (including all attachments,
exhibits, and other materials submitted with such ruling request letter) and
any amendment or supplement to such ruling request letter.
"SPECIFIED ACTION" shall have the meaning provided in Section 10.
"STRADDLE PERIOD" means any Tax Period that begins on or before and ends
after the Closing Date.
"STATE INCOME TAX" means any Tax imposed by any State of the United States
or by any political subdivision of any such State which is imposed on or
measured by net income, including state and local franchise or similar Taxes
measured by net income.
"TAINTING ACT" shall have the meaning provided in Section 10.
"TAX" or "TAXES" means any Income Tax, any Tax on gross income, gross
receipts, profits, or capital stock, or any franchise, withholding, payroll,
social security, workers compensation, unemployment, disability, property, ad
valorem, stamp, excise, severance, occupation, service, sales, use, license,
lease, transfer, import, export, value added, alternative minimum, estimated
or other similar tax (including any fee, assessment, or other charge in the
nature of or in lieu of any tax) imposed by any governmental entity or
political subdivision thereof, and any interest, penalties, additions to tax,
or additional amounts in respect of the foregoing.
"TAX AUTHORITY" means, with respect to any Tax, the governmental entity or
political subdivision thereof that imposes such Tax, and the agency (if any)
charged with the collection of such Tax for such entity or subdivision.
"TAX CONTEST" means an audit, review, examination, or any other
administrative or judicial proceeding with the purpose or effect of
redetermining Taxes or any claim for refund or credit of Taxes of any of ATN,
ECI or the Aircraft Corp. (including any administrative or judicial review
thereof) for any Tax Period ending on or before the Closing Date or any
Straddle Period.
"TAX ITEM" means, with respect to any Income Tax, any item of income, gain,
loss, deduction, or credit.
"TAX LAW" means the law of any governmental entity or political subdivision
thereof relating to any Tax.
"TAX PERIOD" means, with respect to any Tax, the period for which the Tax is
reported as provided under the Code or other applicable Tax Law.
"TAX RECORDS" means Tax Returns, Tax Return workpapers, documentation
relating to any Tax Contests, and any other books of account or records
required to be maintained under the Code or other applicable Tax Laws or under
any record retention agreement with any Tax Authority.
"TAX RETURN" means any report of Taxes due, any claim for refund or credit
of Taxes paid, any information return with respect to Taxes, or any other
similar report, statement, declaration, or document required or permitted to
be filed under the Code or other Tax Law, including any attachments, exhibits,
or other materials submitted with any of the foregoing, and including any
amendments or supplements to any of the foregoing.
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"TRANSACTIONS" shall have the meaning ascribed to that term in the
Subscription Agreement.
"TRANSFER" shall have the meaning set forth in Section 11(a).
"TREASURY REGULATIONS" means the regulations promulgated from time to time
under the Code as in effect for the relevant Tax Period.
Section 2. Allocation of Tax Liabilities. The provisions of this Section 2
are intended to determine each of ATN's, ECI's, Prior's and Prosser's
liability for Taxes with respect to Pre-Distribution Periods. Once the
liability has been determined under this Section 2, Section 5 determines the
time when payment of the liability is to be made, and whether the payment is
to be made to the Tax Authority directly or to ATN or ECI, as the case may be.
2.01 Taxes of GT&T and the Virgin Islands Subsidiaries. This Agreement does
not allocate liability for Taxes imposed on GT&T, Atlantic Tele-Network Co., a
Virgin Islands corporation, or any of the subsidiaries of Atlantic Tele-
Network Co. (except for any withholding of Foreign Income Taxes imposed with
respect to payments made by any of such companies to ATN) and, as between the
parties to this Agreement, such Taxes and Tax Returns relating to such Taxes
shall be solely the responsibility of the legal entity on which such Taxes are
imposed.
2.02 ATN and ECI Liability.
(a) ATN Liability. Notwithstanding the provisions of Section 2.03, as
between ATN and ECI, ATN shall be liable for, and shall indemnify and hold
harmless the ECI Group from and against:
(i) any Restructuring Taxes which arise from any breach by ATN of its
representations or covenants under Section 10 or from any Tainting Act by
ATN or its Affiliates or the inaccuracy of any factual statements or
representations made in or in connection with the Ruling Request with
respect to the activities of ATN and its Affiliates after the Closing;
(ii) all Taxes to the extent taken into account in clauses (b) or (r) of
the definition of "Debits" for purposes of calculating the Final Closing
Adjustment;
(iii) an amount of Income Tax equal to the provision for income tax
expense of ATN which would be accrued on a hypothetical statement of
operations of ATN for the period after April 30, 1997 to and including the
Closing Date which statement of operations includes as revenues or gross
income only dividends paid by GT&T to ATN during such period, interest
accrued during such period on indebtedness of GT&T to ATN and advisory fees
payable by GT&T to ATN during such period (computed on an accrual basis)
and includes as expense all expenses of ATN during such period (to the
extent such expenses are deductible for Income Tax purposes) except for
expenses charged to ECI under clauses (c), (j), (k), (m), (n), (o), and (s)
of the definition of "Debits" in the Subscription Agreement;
(iv) any withholding of Foreign Income Taxes imposed with respect to
payments from GT&T to ATN; and
(v) 50% of all other Taxes (including Restructuring Taxes) of ATN or
Aircraft Corp. (in each case, whether computed on a separate company or
consolidated basis) with respect to all Pre-Distribution Periods, except
for Taxes described in clauses (i), (ii) or (iii) of Section 2.02(b).
(b) ECI Liability. Notwithstanding the provisions of Section 2.03, as
between ATN and ECI, ECI shall be liable for, and shall indemnify and hold
harmless the ATN Group from and against:
(i) Any Restructuring Taxes which arise from any breach by ECI of its
representations or covenants under Section 10 or from any Tainting Act by
ECI or its Affiliates or the inaccuracy of any factual statements or
representations made in or in connection with the Ruling Request with
respect to the activities of ECI and its Affiliates after the Closing;
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(ii) 100% of all Taxes of ECI (computed on a separate company basis) for
all Pre-Distribution Periods;
(iii) any withholding of Foreign Income Taxes imposed with respect to
payments from Atlantic Tele-Network Co. or any of its subsidiaries to ATN
except to the extent taken into account in clauses (b) or (r) of the
definition of "Debits" for purposes of calculating the Final Closing
Adjustment; and
(iv) 50% of all other Taxes (including Restructuring Taxes) of ATN or
Aircraft Corp. (in each case, whether computed on a separate company or
consolidated basis) for all Pre-Distribution Periods, except for Taxes
described in clauses (i), (ii), (iii) or (iv) of Section 2.02(a).
Section 2.03 Liability of Prior and Prosser.
(a) Prior Liability. Prior shall be liable for, and shall indemnify and hold
harmless the ATN Group and the ECI Group from and against any liability for,
any Restructuring Taxes which arise from (x) any breach of Prior's
representations and covenants under Section 11(a) or (y) the inaccuracy of any
factual statements or representations relating to Prior or members of Prior's
family made in the Letter Request or in any certificate provided by Prior in
connection with the Ruling Request or in connection with an opinion of tax
counsel with respect to the Transactions.
(b) Prosser Liability. Prosser shall be liable for, and shall indemnify and
hold harmless the ATN Group and the ECI Group from and against any liability
for any Restructuring Taxes which arise from (x) any breach of Prosser's
representations and covenants under Section 11(b) or (y) the inaccuracy of any
factual statements or representations relating to Prosser or members of
Prosser's family made in the Letter Request or in any certificate provided by
Prosser in connection with the Ruling Request or in connection with an opinion
of tax counsel with respect to the Transactions.
Section 2.04. Expenses. Each of ATN, ECI, Prior and Prosser shall be liable
for all fees, costs and expenses, including without limitation reasonable
attorneys' fees, arising out of, or incident to, any proceeding before any Tax
Authority, or any judicial authority, with respect to any Taxes for which it
or he (as the case may be) is liable under Section 2.02(a) (in the case of
ATN), 2.02(b) (in the case of ECI), 2.03(a) (in the case of Prior) or 2.03(b)
(in the case of Prosser). In addition, an indemnified party under Section 2.02
or 2.03 shall be entitled to recover from the indemnifying party thereunder
all fees, costs and expenses, including without limitation reasonable
attorneys' fees, incurred by the indemnified party in connection with
enforcement of its rights to indemnification against the indemnifying party.
Section 3. Proration of Taxes for Straddle Periods.
3.01 General Method of Proration. For purposes of Section 2, in the case of
any Straddle Period, Tax Items shall be apportioned between Pre-Distribution
Periods and Post-Distribution Periods in accordance with the principles of
Treasury Regulation Section 1.1502-76(b). No election shall be made under
Treasury Regulation Section 1.1502-76(b)(2)(ii) (relating to ratable
allocation of a year's items). If the Closing Date is not an Accounting Cutoff
Date, the provisions of Treasury Regulation Section 1.1502-76(b)(2)(iii) will
be applied to ratably allocate the items (other than extraordinary items) for
the month which includes the Closing Date.
3.02 Transaction Treated as Extraordinary Item. In determining the
apportionment of Tax Items between Pre-Distribution Periods and Post-
Distribution Periods, any Tax Item relating to the Transactions shall be
treated as an extraordinary item described in Treasury Regulation Section
1.1502-76(b)(2)(ii)(C) and shall be allocated to Pre-Distribution Periods, and
any Taxes related to any such Tax Item (including Restructuring Taxes) shall
be treated under Treasury Regulation Section 1.1502-76(b)(2)(iv) as relating
to such extraordinary item and shall be allocated to Pre-Distribution Periods.
3.03 Proration of Other Taxes. For purposes of Section 2, in the case of any
Straddle Period, Taxes that are not susceptible to apportionment in the manner
described in Section 3.01 (e.g., real and personal property taxes) shall be
apportioned between Pre-Distribution Periods and Post-Distribution Periods on
a pro rata basis based on the number of days in the relevant Tax Period.
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Section 4. Preparation and Filing of Tax Returns.
4.01 General.
(a) All Tax Returns shall be prepared and filed when due (including
extensions) by the person obligated to file such Tax Returns under the Code or
applicable Tax Law. ATN and ECI shall provide, and shall cause their
respective Affiliates to provide, assistance and cooperate with one another in
accordance with Section 6 with respect to the preparation and filing of all
Tax Returns, including, without limitation, providing information required to
be provided in Section 6.
(b) ECI shall, for each Tax Period or portion thereof for which ECI or
Aircraft Corp. is included in a Tax Return required to be filed by ATN,
provide ATN with (i) a true and correct schedule in the form of a separate
Federal Income Tax Return for each of ECI and Aircraft Corp., and (ii) a
reconciliation of book income to federal taxable income for ECI and Aircraft
Corp. ECI hereby agrees to use its best efforts to provide ATN with such
schedules and computations no later than the first day of the sixth month
following the end of the period to which such schedules and computations
relate.
4.02 Manner of Filing.
(a) All Tax Returns filed or caused to be filed by ATN or ECI after the
Closing Date shall be prepared on a basis that is consistent with (i) any IRS
ruling obtained by ATN in connection with the Transactions, (ii) the treatment
of ATN's purchase pursuant to Article I of the Repurchase and Recapitalization
Agreement of 416,998 shares of common stock at ATN owned by Prior and 384,564
shares of common stock of ATN owned by the 1994 Prior Charitable Remainder
Trust as distributions of property to which Section 301 of the Code applies,
and (iii) the treatment of the transactions contemplated by Article II of the
Repurchase and Recapitalization Agreement as tax-free to ATN, Prior and
Prosser for Federal Income Tax purposes by reason of such transactions
qualifying as reorganizations within the meaning of Section 368(a) of the Code
or otherwise (in each case, in the absence of a controlling change in law or
circumstances), and shall be filed on a timely basis by the Responsible
Company.
(b) Except as otherwise agreed in writing by ATN and ECI, and in the absence
of a controlling change in law or circumstances, all Tax Returns filed or
caused to be filed by ATN or ECI after the Closing Date shall be prepared
consistent with past practices, elections, accounting methods, conventions,
and principles of taxation used for the most recent taxable periods for which
Tax Returns involving similar items have been filed prior to the Closing Date,
except that, with respect to any Tax Item not relating to the Transactions,
one party may take an inconsistent position without the agreement of the other
party only to the extent such position does not create a Tax detriment to the
other party or any member of such other party's Group.
Section 5. Tax Payments and Intercompany Billings.
5.01 Payment of Taxes With Respect to Pre-Distribution or Straddle Period
Returns Filed After the Distribution Date. In the case of any Tax Return
required to be filed by ATN under Section 4.01 with respect to a Pre-
Distribution Period or Straddle Period the due date for which Tax Return
(including extensions) is after the Closing Date, at least 10 business days
prior to any Payment Date, ATN (i) shall compute the amount of Tax required to
be paid to the relevant Tax Authority (taking into account the requirements of
Section 4.02(b) relating to consistent accounting practices) with respect to
such Tax Return on such Payment Date and (ii) shall send to ECI a written
notice and demand for payment by ECI of its share (if any) of such Tax payment
determined by ATN in accordance with Section 2.02(b) and accompanied by a
statement detailing the Taxes to be paid and describing in reasonable detail
the particulars relating thereto. ECI shall deliver to ATN on or before the
business day immediately preceding such Payment Date a cashier's check made to
the order of the applicable Tax Authority for the amount of ECI's share of
such Tax Payment, and ATN shall remit such check and make the remainder of
such Tax payment to the relevant Tax Authority on or before such Payment Date.
5.02 Payment of Tax Related to Adjustments. ATN shall pay to the relevant
Tax Authority when due any additional Taxes required to be paid as a result of
any adjustment to Taxes with respect to any Pre-
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Distribution Period. At least 10 business days before such additional Tax
payment is due to be paid by ATN, ATN shall send to ECI, Prior or Prosser, as
the case may be, a written notice and demand from ATN for payment by it or
him, as the case may be, of its or his share (if any) of any such additional
Tax payment determined by ATN in accordance with Section 2 accompanied by a
statement detailing the Taxes to be paid and describing in reasonable detail
the particulars relating thereto; provided, however, that ATN will not make a
demand for an indemnification payment attributable to any Restructuring Taxes
under Section 2.02(b)(i) or 2.03 until the liability for such Restructuring
Taxes either (i) is established by a Final Determination or (ii) subject to
Section 8.02, is otherwise agreed to in writing by ATN with the applicable Tax
Authority. ECI, Prior or Prosser, as the case may be, shall pay to ATN, in
immediately available funds, ECI's or his share (if any) of any such
additional Tax Payment on or before the business day immediately preceding the
date such additional Tax is due to be paid by ATN; provided, however, that if
any portion of such additional Tax payment is indemnified by Prior or Prosser
under Section 2.03, (x) ECI may reduce the amount of its payment to ATN under
this Section 5.02 in respect of such additional Tax payment by 50% of the
amount of any indemnification payment in respect of such additional Tax
payment actually received by ATN from Prior or Prosser, as the case may be, on
or prior to the date that ECI is required to make such payment to ATN, and (y)
ATN shall immediately remit to ECI 50% of the amount of any indemnification
payment in respect of such additional Tax payment actually received by ATN
from Prior or Prosser, as the case may be, after ECI actually made a payment
to ATN under this Section 5.02 in respect of such additional Tax payment.
5.03 Indemnification Payments. Without overriding the procedures set forth
in Sections 5.01 and 5.02, if a Company (the "payor") pays to a Tax Authority
a Tax for which the other Company (the "responsible party") is liable under
this Agreement, the responsible party shall reimburse the payor within 10
business days of delivery by the payor to the responsible party of an invoice
for the amount due, accompanied by evidence of payment and a statement
detailing the Taxes paid and describing in reasonable detail the particulars
relating thereto. The reimbursement shall include interest on the Tax payment
computed at the Prime Rate based on the number of days from the date of the
payment to the Tax Authority to the date of reimbursement under this Section
5.03.
Section 6. Assistance and Cooperation.
6.01 General. After the Closing Date, each of ATN and ECI shall cooperate
(and cause their respective Affiliates to cooperate) with each other and with
each other's agents, including accounting firms and legal counsel, in
connection with Tax matters relating to ATN and ECI and their respective
Affiliates including, without limitation, (i) preparation and filing of Tax
Returns, (ii) determining the liability for and amount of any Taxes due
(including estimated Taxes) or the right to and amount of any refund of Taxes,
(iii) examinations of Tax Returns, and (iv) any administrative or judicial
proceeding in respect of Taxes assessed or proposed to be assessed. Such
cooperation shall include making all information and documents in their
possession relating to the other Company and its Affiliates reasonably
available to such other Company as provided in Section 7. Each of the
Companies shall also make available to each other, as reasonably requested and
available, personnel (including officers, directors, employees and agents of
the Companies or their respective Affiliates) responsible for preparing,
maintaining, and interpreting information and documents relevant to Taxes, and
personnel reasonably required as witnesses or for purposes of providing
information or documents in connection with any administrative or judicial
proceedings relating to Taxes. Any information or documents provided under
this Section 6 shall be kept confidential by the Company receiving the
information or documents, except as may otherwise be necessary in connection
with the filing of Tax Returns or in connection with any administrative or
judicial proceedings relating to Taxes.
6.02 Income Tax Return Information. Each Company will provide to the other
Company information and documents relating to its Group required by the other
Company to prepare Tax Returns. The Responsible Company shall determine a
reasonable compliance schedule for such purpose in accordance with ATN's past
practices. Any additional information or documents the Responsible Company
requires to prepare such Tax Returns will be provided in accordance with past
practices, if any, or as the Responsible Company reasonably requests and in
sufficient time for the Responsible Company to file such Tax Returns timely.
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Section 7. Tax Records.
7.01 Retention of Tax Records. Except as provided in Section 7.02, each of
ATN and ECI shall preserve and keep all Tax Records exclusively relating to
the assets and activities of its Group for Pre-Distribution Tax Periods and
all other Tax Records relating to Taxes of the Groups for Pre-Distribution Tax
Periods, for so long as the contents thereof may become material in the
administration of any matter under the Code or other applicable Tax Law, but
in any event until the later of (i) the expiration of any applicable statutes
of limitation, and (ii) seven years after the Closing Date. If, prior to the
expiration of the applicable statute of limitation and such seven-year period,
a Company reasonably determines that any Tax Records which it is required to
preserve and keep under this Section 7 are no longer material in the
administration of any matter under the Code or other applicable Tax Law, such
Company may dispose of such records upon 90 days prior notice to the other
Company. Such notice shall include a list of the records to be disposed of
describing in reasonable detail each file, book, or other record accumulation
to be disposed of. The notified Company shall have the opportunity, at its
cost and expense, to copy or remove, within such 90-day period, all or any
part of such Tax Records.
7.02 State and Foreign Income Tax Returns. Tax Returns with respect to State
Income Taxes and Foreign Income Taxes and workpapers prepared in connection
with preparing such Tax Returns shall be preserved and kept, in accordance
with the guidelines of Section 7.01, by the person responsible for preparing
and filing the applicable Tax Return.
7.03 Access to Tax Records. The Companies and their respective Affiliates
shall make available to each other for inspection and copying during normal
business hours upon reasonable notice all Tax Records in their possession to
the extent reasonably required by the other Company in connection with the
preparation of Tax Returns, audits, litigation, or the resolution of items
under this Agreement.
Section 8. Tax Contests.
8.01 Notice. Each of ATN and ECI shall provide prompt notice to the other
and to Prior and Prosser of any pending or threatened Tax audit, assessment or
proceeding or other Tax Contest of which it becomes aware related to Taxes for
Tax Periods for which it is indemnified by the other or Prior or Prosser, as
the case may be, hereunder. Such notice shall contain factual information (to
the extent known) describing any asserted Tax liability in reasonable detail
and shall be accompanied by copies of any notice and other documents received
from any Tax Authority in respect of any such matters. If an indemnified party
has knowledge of an asserted Tax liability for which it is to be indemnified
hereunder and such party fails to give the indemnifying party prompt notice of
such asserted Tax liability, such failure to give notice will not relieve the
indemnifying party of its obligations hereunder, except to the extent that the
indemnifying party is materially prejudiced by such failure.
8.02 Control of Tax Contests. Each of ATN and ECI shall have full
responsibility and discretion in handling, settling or contesting any Tax
Contest involving a Tax Return for which it has filing responsibility pursuant
to Section 4 of this Agreement; provided, however, ECI, Prior or Prosser, at
it or his sole cost and expense, may participate in any Tax Contest with
respect to any Restructuring Taxes for which it or he has liability or an
indemnification obligation with respect to such Taxes under this Agreement;
provided, further, that ECI, at its sole cost and expense and employing Cahill
Gordon & Reindel or other counsel reasonably acceptable to ATN, shall be
permitted to jointly share with ATN, employing Fried, Frank, Harris, Shriver &
Jacobson or other counsel reasonably acceptable to ECI, the responsibility and
discretion in handling, settling or contesting any Tax Contest with respect to
any Taxes for which ECI has liability or an indemnification obligation to ATN
with respect to such Taxes, unless ECI fails to provide to ATN a written
acknowledgment of ECI's potential liability for such Taxes or indemnification
obligation to ATN with respect to such Taxes within 10 business days of ECI's
receipt of a written request by ATN therefor. Except as otherwise provided in
Section 2.04 hereof, any costs incurred in handling, settling or contesting
any Tax Contest shall be borne by the party having full responsibility and
discretion thereof.
Section 9. Effective Date; Termination of Prior Intercompany Tax Allocation
Agreements. This Agreement shall be effective on the Closing Date. Immediately
prior to the close of business on the Closing Date, all Intercompany Tax
Allocation Agreements shall be terminated.
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Section 10. No Inconsistent Actions.
(a) Each of the Companies covenants and agrees that, except as disclosed in
the Letter Request, it will not take any action, and it will cause its
Affiliates to refrain from taking any action, which may be inconsistent with
the Tax treatment of the Transactions as contemplated in the Ruling Request
(any such action is referred to in this Section 10 as a "Tainting Act"),
unless (i) the Company or Affiliate thereof proposing such Tainting Act (the
"Requesting Party") either (A) obtains a ruling with respect to the Tainting
Act from the Internal Revenue Service or other applicable Tax Authority that
is reasonably satisfactory to the other Company (the "Requested Party")
(except that the Requesting Party shall not submit any such ruling request if
a Requested Party determines in good faith that filing such request might have
a materially adverse effect upon such Requested Party), or (B) obtains an
unqualified opinion, reasonably satisfactory in form and substance to
Requested Party, of Fried, Frank, Harris, Shriver & Jacobson or Cahill Gordon
& Reindel or other independent nationally recognized tax counsel acceptable to
the Requested Party, on a basis of assumed facts and representations
consistent with the facts at the time of such action, that such Tainting Act
will not affect the Tax treatment of the Transactions as contemplated in the
Ruling Request, or (ii) the Requested Party consents in writing to such
Tainting Act, which consent shall be granted or withheld in the sole and
absolute discretion of the Requested Party. Without limiting the foregoing:
(i) Specified Actions. During the two-year period beginning on (and
including) the Closing Date, unless clause (i) or (ii) of the preceding
paragraph is satisfied with respect to the applicable action, and except as
disclosed in the Letter Request, ATN and ECI will not (and neither will
cause or permit any of its Affiliates to) (A) liquidate or merge with or
into any other corporation; (B) issue any capital stock that in the
aggregate exceeds 45%, by vote or value, of its capital stock issued and
outstanding immediately after the Distribution; (C) redeem, purchase or
otherwise reacquire its capital stock issued and outstanding immediately
after the Distribution (other than through stock purchases meeting the
requirements of section 4.05(1)(b) of Rev. Proc. 96-30); (D) make a
material disposition (including transfers from one member of a Group to
another member of that Group) or cessation of operations by means of a sale
or exchange of assets or capital stock, a distribution to stockholders, or
otherwise, of the assets constituting the trades or businesses relied upon
in the Ruling Request to satisfy Section 355(b) of the Code; or (E)
discontinue or cause to be discontinued the active conduct of the trades or
businesses relied upon in the Ruling Request to satisfy Section 355(b) of
the Code (each of the foregoing, a "Specified Action").
(ii) No Inconsistent Plan or Intent. Each of ATN and ECI represents and
warrants that it shall, and shall cause each of its Affiliates to, comply
with each factual statement and representation in the Ruling Request, and
that neither it nor any of its Affiliates has any plan or intent to take
any Specified Action or any action which is inconsistent with any factual
statements or representations in the Ruling Request. Regardless of any
change in circumstances, each of ATN and ECI covenants and agrees that it
will not take, and it will cause its Affiliates to refrain from taking, any
such Specified Action or inconsistent action on or before the last day of
the calendar year ending after the second anniversary of the Closing Date
other than as permitted in this Section 10.
(iii) Amended or Supplemental Rulings. Each of ATN and ECI covenants and
agrees that it will not file, and it will cause its Affiliates to refrain
from filing, any amendment or supplement to the Ruling Request subsequent
to the Closing Date without the consent of the other, which consent shall
not be unreasonably withheld.
(b) Notwithstanding anything to the contrary in this Agreement, each Company
shall be solely liable for, and shall indemnify and hold harmless the other
Company from any Restructuring Tax resulting from a Tainting Act by such first
Company or its Affiliates, regardless of whether clause (i) or (ii) of Section
10(a) was satisfied with respect to such Tainting Act.
Section 11. Certain Representations and Covenants of Prior and Prosser.
(a) Representations and Covenants of Prior.
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(i) Transfer Restrictions. Prior represents and warrants that he has no
plan or intention to sell, exchange, transfer by gift, pledge or otherwise
dispose of or encumber, whether actually or constructively by means of a
short sale, equity swap, forward or futures contract, option or otherwise
(collectively, a "Transfer") any stock or securities of ATN, or any
beneficial or financial interest therein, after the Transactions except for
Permitted Pledges. Prior covenants and agrees that during the two-year
period beginning on (and including) the Closing Date, without the prior
written consent of ECI (which consent ECI may grant or withhold in its sole
discretion), he will not Transfer any stock or securities of ATN, or any
beneficial or financial interest therein, except for Permitted Pledges,
unless he first obtains either (A) a ruling with respect to the Transfer
from the Internal Revenue Service or other applicable Tax Authority that is
reasonably satisfactory to ECI (acting on advice of counsel, such counsel
to be reasonably satisfactory to ATN) or (B) an unqualified opinion,
reasonably satisfactory in form and substance to ECI (acting on advice of
counsel, such counsel to be reasonably satisfactory to ATN), of Fried,
Frank, Harris, Shriver & Jacobson or other independent nationally
recognized tax counsel acceptable to ECI, on a basis of assumed facts and
representations consistent with the facts at the time of such Transfer,
that such Transfer will not affect the Tax treatment of the Transactions as
contemplated in the Ruling Request. In order to ensure compliance with the
requirements of this Section 11(a)(i), during the two-year period beginning
on (and including) the Closing Date, Prior shall maintain at least a
majority of the outstanding common stock of ATN (or all stock or securities
in ATN owned by him if he shall then own less than a majority of the
outstanding common stock of ATN) in accounts with one or more banks or
brokerage firms (collectively, "Financial Institutions"), which accounts
may be margin accounts, provided that each such Financial Institution shall
deliver a written undertaking to ECI stating that such Financial
Institution will not permit any Transfer of Mr. Prior's stock or securities
in ATN from such account without the prior written approval of ECI except
for (i) sales of such stock or securities made by such Financial
Institution for the purpose of obtaining repayment of any loans or advances
made to Prior by such Financial Institution following a default by Prior in
respect of such loans or advances, and (ii) any Transfer of such stock or
securities from an account of Prior with such Financial Institution to an
account of Prior with another Financial Institution which shall have given
ECI a written undertaking described in this Section 11(a)(i).
Notwithstanding anything to the contrary in this Agreement, Prior shall be
liable for, and shall indemnify and hold harmless the ATN Group and the ECI
Group from and against any liability for, any Restructuring Taxes which
arises out of any Transfer of any of his stock or securities in ATN or any
beneficial or financial interest therein (including, without limitation,
any sale of stock subject to a Permitted Pledge on foreclosure of such
pledge) regardless of whether the provisions of this Section 11(a)(i) were
satisfied with respect to such Transfer.
(ii) No Inconsistent Plan or Intent. Prior represents and warrants that
he has no plan or intent to cause ATN or any of its Affiliates to take any
Tainting Act (including any Specified Action) or any action inconsistent
with any factual statement or representation in the Letter Request. Prior
covenants and agrees that, so long as he owns a majority of the voting
power of the outstanding capital stock of ATN, he will cause ATN and its
Affiliates to refrain from taking any Tainting Act (including any Specified
Action) or any action inconsistent with any factual statement or
representation in the Letter Request on or before the last day of the
calendar year ending after the second anniversary of the Closing Date other
than as permitted in Section 10.
(b) Representations and Covenants of Prosser.
(i) Transfer Restrictions. Prosser represents and warrants that he has no
plan or intention to sell, exchange, transfer by gift, pledge or otherwise
dispose of or encumber, whether actually or constructively by means of a
short sale, equity swap, forward or futures contract, option or otherwise
(collectively, a "Transfer") any stock or securities of ECI, or any
beneficial or financial interest therein, after the Transactions except for
Permitted Pledges. Prosser covenants and agrees that during the two-year
period beginning on (and including) the Closing Date, without the prior
written consent of ATN (which consent ATN may grant or withhold in its sole
discretion), he will not Transfer any stock or securities of ECI, or any
beneficial or financial interest therein, except for Permitted Pledges,
unless he first obtains either (A) a ruling with respect to the Transfer
from the Internal Revenue Service or other applicable Tax Authority that
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is reasonably satisfactory to ATN (acting on advice of counsel, such
counsel to be reasonably satisfactory to ECI) or (B) an unqualified
opinion, reasonably satisfactory in form and substance to ATN (acting on
advice of counsel, such counsel to be reasonably satisfactory to ECI), of
Cahill Gordon & Reindel or other independent nationally recognized tax
counsel acceptable to ATN, on a basis of assumed facts and representations
consistent with the facts at the time of such Transfer, that such Transfer
will not affect the Tax treatment of the Transactions as contemplated in
the Ruling Request. In order to ensure compliance with the requirements of
this Section 11(b)(i), during the two-year period beginning on (and
including) the Closing Date, Prosser shall maintain at least a majority of
the outstanding common stock of ECI (or all stock or securities in ECI
owned by him if he shall then own less than a majority of the outstanding
common stock of ECI) in accounts with one or more banks or brokerage firms
(collectively, "Financial Institutions"), which accounts may be margin
accounts, provided that each such Financial Institution shall deliver a
written undertaking to ATN stating that such Financial Institution will not
permit any Transfer of Mr. Prosser's stock or securities in ECI from such
account without the prior written approval of ATN except for (i) sales of
such stock or securities made by such Financial Institution for the purpose
of obtaining repayment of any loans or advances made to Prosser by such
Financial Institution following a default by Prosser in respect of such
loans or advances, and (ii) any Transfer of such stock or securities from
an account of Prosser with such Financial Institution to an account of
Prosser with another Financial Institution which shall have given ATN a
written undertaking described in this Section 11(b)(i). Notwithstanding
anything to the contrary in this Agreement, Prosser shall be liable for,
and shall indemnify and hold harmless the ATN Group and the ECI Group from
and against any liability for, any Restructuring Taxes which arises out of
any Transfer of any of his stock or securities in ECI or any beneficial or
financial interest therein (including, without limitation, any sale of
stock subject to a Permitted Pledge on foreclosure of such pledge)
regardless of whether the provisions of this Section 11(b)(i) were
satisfied with respect to such Transfer.
(ii) No Inconsistent Plan or Intent. Prosser represents and warrants that
he has no plan or intent to cause ECI or any of its Affiliates to take any
Tainting Act (including any Specified Action) or any action inconsistent
with any factual statement or representation in the Letter Request. Prosser
covenants and agrees that, so long as he owns a majority of the voting
power of the outstanding capital stock of ECI, he will cause ECI and its
Affiliates to refrain from taking any Tainting Act (including any Specified
Action) or any action inconsistent with any factual statement or
representation in the Letter Request on or before the last day of the
calendar year ending after the second anniversary of the Closing Date other
than as permitted in Section 10.
(c) Upon compliance by Prior or Prosser with the requirements for a Transfer
specified in Sections 11(a)(i) or 11(b)(i), ECI or ATN, as the case may be,
shall promptly give written permission for such Transfer to the Financial
Institution holding the stock or securities proposed to be Transferred).
Section 12. Survival of Obligations. The representations, warranties,
covenants and agreements set forth in this Agreement shall be unconditional
and absolute and shall remain in effect without limitation as to time.
Section 13. Treatment of Payments; Tax Gross Up.
13.01 Treatment of Tax Indemnity Payments. In the absence of any change in
tax treatment under the Code or other applicable Tax Law, any Tax indemnity
payments made by a Company under Section 5 shall be reported for Tax purposes
by the payor and the recipient as distributions or capital contributions, as
appropriate, occurring immediately before the Distribution on the Closing
Date, but only to the extent the payment does not relate to a Tax allocated to
the payor in accordance with Treasury Regulation Section 1.1502-33(d) (or
under corresponding principles of other applicable Tax Laws).
13.02 Tax Gross Up. If notwithstanding the manner in which Tax indemnity
payments were reported, there is an adjustment to the Tax liability of a
Company as a result of its receipt of a Tax indemnity payment in
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respect of Restructuring Taxes resulting from a breach of a representation or
covenant made hereunder by the indemnifying party, such payment shall be
appropriately adjusted so that the amount of such payment, reduced by the
amount of all Income Taxes payable with respect to the receipt thereof, shall
equal the amount of the payment which the Company receiving such payment would
otherwise be entitled to receive pursuant to this Agreement.
Section 14. Disagreements. If after good faith negotiations the parties
cannot agree on the application of this Agreement to any matter, then the
matter will be referred to a nationally recognized accounting firm acceptable
to each of the parties (the "Accounting Firm"). The Accounting Firm shall
furnish written notice to the parties of its resolution of any such
disagreement as soon as practical, but in any event no later than 45 days
after its acceptance of the matter for resolution. Any such resolution by the
Accounting Firm will be conclusive and binding on all parties to this
Agreement. In accordance with Section 17, each party shall pay its own fees
and expenses (including the fees and expenses of its representatives) incurred
in connection with the referral of the matter to the Accounting Firm. All fees
and expenses of the Accounting Firm in connection with such referral shall be
shared equally by the parties affected by the matter.
Section 15. Late Payments. Any amount owed by one party to another party
under this Agreement which is not paid when due shall bear interest at the
Prime Rate plus two percent, compounded semiannually, from the due date of the
payment to the date paid. To the extent interest required to be paid under
this Section 15 duplicates interest required to be paid under any other
provision of this Agreement, interest shall be computed at the higher of the
interest rate provided under this Section 15 or the interest rate provided
under such other provision.
Section 16. Expenses. Except as provided in Section 14 and Section 2.04,
each party and its Affiliates shall bear their own expenses incurred in
connection with preparation of Tax Returns, Tax Contests, and other matters
related to Taxes under the provisions of this Agreement.
Section 17. General Provisions
17.01 Addresses and Notices. Any notice, demand, request or report required
or permitted to be given or made to any party under this Agreement shall be in
writing and shall be deemed given or made when delivered in party or when sent
by first class mail or by other commercially reasonable means of written
communication (including delivery by an internationally recognized courier
service or by facsimile transmission) to the party at the party's address as
follows:
If to ATN or Prior:
Atlantic Tele-Network, Inc.
Estate Havensight
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
(340) 774-2260 or 777-8000
Attention: Cornelius B. Prior
Telecopy: (809) 774-7790
With a copy to:
Lewis A. Stern, P.C.
Fried, Frank, Harris, Shriver
& Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8190
Telecopy: (212) 859-8587
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If to ECI or Prosser:
Atlantic Tele-Network, Inc.
Chase Financial Center
P.O. Box 1730
St. Croix, U.S. Virgin Islands 06821-1730
(340) 777-8000
Attention: Jeffrey J. Prosser
Telecopy: (809) 774-5487
With a copy to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3851
Telecopy: (212) 269-5420
A party may change the address for receiving notices under this Agreement by
providing written notice of the change of address to the other parties.
17.02 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors and assigns.
17.03 Waiver. No failure by any party to insist upon the strict performance
of any obligation under this Agreement or to exercise any right or remedy
under this Agreement shall constitute waiver of any such obligation, right, or
remedy or any other obligation, rights, or remedies under this Agreement.
17.04 Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained herein
shall not be affected thereby.
17.05 Further Action. The parties shall execute and deliver all documents,
provide all information, and take or refrain from taking action as may be
necessary or appropriate to achieve the purposes of this Agreement, including
the execution and delivery to the other parties and their Affiliates and
representatives of such powers of attorney or other authorizing documentation
as is reasonably necessary or appropriate in connection with Tax Contests (or
portions thereof) under the control of such other parties in accordance with
Section 8.
17.06 Integration. This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter of this Agreement and supersedes all
prior agreements and understandings pertaining thereto. In the event of any
inconsistency between this Agreement and any other agreements relating to the
Transactions, the provisions of this Agreement shall control.
17.07 Construction. The language in all parts of this Agreement shall in all
cases be construed according to its fair meaning and shall not be strictly
construed for or against any party.
17.08 No Double Recovery; Subrogation. No provision of this Agreement shall
be construed to provide an indemnity or other recovery for any costs, damages,
or other amounts for which the damaged party has been fully compensated under
any other provision of this Agreement or under any other agreement or action
at law or equity. Unless expressly required in this Agreement, a party shall
not be required to exhaust all remedies available under other agreements or at
law or equity before recovering under the remedies provided in this Agreement.
Subject to any limitations provided in this Agreement, the indemnifying party
shall be subrogated to all rights of the indemnified party for recovery from
any third party.
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17.09 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
taken together shall constitute one and the same instrument.
17.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
executed in and to be performed in that State.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
the respective officers as of the date set forth above.
Atlantic Tele-Network, Inc.
By: _________________________________
Its: ________________________________
Emerging Communications, Inc.
By: _________________________________
Its: ________________________________
Cornelius B. Prior, Jr.
-------------------------------------
Jeffrey P. Prosser
-------------------------------------
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ANNEX B
PRIVATE AND CONFIDENTIAL
July 7, 1997
The Board of Directors
Atlantic Tele-Network, Inc.
Chase Financial Center
PO Box 1730
St. Croix, U.S. Virgin Islands, 00821
Members of the Board:
We understand that Atlantic Tele-Network, Inc., a Delaware corporation (the
"Company"), proposes to effect a reorganization and separation of the
businesses of the Company involving the adoption by the stockholders of the
Company of the following agreements:
(i) the Subscription Agreement between the Company and Emerging
Communications, Inc., a Delaware corporation and newly formed wholly owned
subsidiary of the Company ("ECI"), pursuant to which the Company will
transfer certain assets and liabilities to ECI so that all of the assets,
liabilities and operations of (a) the Company's business and operations of
the Virgin Islands and certain other assets and liabilities of the Company
will be owned by ECI and (b) the Company's business and operations in
Guyana will continue to be owned by the Company (the Company, after
consummation of the transaction, to be hereinafter referred to as "New
ATN") (the "Subscription Agreement");
(ii) the Recapitalization Agreement, among the Company, Mr. Cornelius
Prior, co-chief executive officer and a principal stockholder of the
Company ("Prior"), individually and as trustee of the 1994 Charitable
Remainder Trust (the "Trust"), and Mr. Jeffrey Prosser, co-chief executive
officer and a principal stockholder of the Company ("Prosser"), pursuant to
which the Company will repurchase in the aggregate 765,562 shares of
Company Common Stock (as defined in the Recapitalization Agreement) owned
by Prior and the Trust at $22.7284 per share. Prior will exchange all of
his remaining 2,927,038 shares of Company Common Stock for a like number of
shares of a new series of common stock of the Company to be designated
Class B Common Stock (as defined in the Recapitalization Agreement), and
Prosser will exchange all of his 3,325,000 shares of Company Common Stock
for a like number of shares of a new series of common stock of the Company
to be designated Class A Common Stock (as defined in the Recapitalization
Agreement) (the "Recapitalization Agreement"); and
(iii) the Agreement and Plan of Merger, between ATN Merger Co., a
Delaware corporation ("Mergerco"), and the Company, pursuant to which (i)
Mergerco will be merged with and into the Company (the "Merger"), (ii) each
share of Company Common Stock (but not the newly created Class A Common
Stock and Class B Common Stock to be issued prior to the Merger) will be
converted into the right to receive four-tenths (0.4) of a share of New ATN
common stock, par value $0.01 (the "New ATN Common Stock"), and one share
(1.0) of ECI common stock, par value $0.01 (the "ECI Common Stock"), (iii)
the outstanding shares of Class A Common Stock of the Company will be
converted into the right to receive in the aggregate 5,704,231 shares of
ECI Common Stock, and (iv) the outstanding shares of Class B Common Stock
of the Company will be converted into the right to receive in the aggregate
2,807,040 shares of New ATN Common Stock (the "Merger Agreement" and
together with the Subscription Agreement and the Recapitalization
Agreement, the "Agreements").
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You have requested our opinion as to the fairness from a financial point of
view of the basic economic terms of the transaction provided for by the
Agreements to the Public Stockholders (defined as all holders of the Company
Common Stock except for Prior, the Trust, and Prosser and his family) of the
Company.
In conducting our analysis and arriving at the opinion expressed herein, we
have reviewed such materials and analyzed such financial and other factors as
we deemed relevant under the circumstances, including, but not limited to:
(i) drafts dated June 16, 1997 of the Agreements (excluding the schedules
to the Subscription Agreement) and certain ancillary agreements and
exhibits to the Subscription Agreement;
(ii) a draft dated June 27, 1997 of the Proxy Statement/Prospectus on
Form S-4;
(iii) a copy of the Rural Telephone Finance Cooperative loan commitment
letter, dated April 14, 1997;
(iv) certain publicly-available historical financial and operating data
of the Company, including, but not limited to, (a) the Annual Reports on
Form 10-K of the Company for the fiscal years ended December 31, 1994, 1995
and 1996, (b) the Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, and (c) the Proxy Statement for the Annual Meeting of
Stockholders held on April 30, 1997;
(v) certain information relating to New ATN and ECI, including projected
income statements, balance sheets and cash flow data for the fiscal years
ending December 31, 1997, 1998, 1999 and 2000 which were prepared by the
management of the Company;
(vi) publicly available financial, operating and stock market data
concerning certain companies engaged in businesses we deemed comparable to
ECI, or otherwise relevant to our inquiry;
(vii) the historical stock prices and trading volumes, and current
trading multiples of the Company Common Stock; and
(viii) such other financial studies, analyses, reviews and investigations
that we deemed appropriate.
We have assumed, with your consent, that the drafts of the Agreements which
we reviewed (as referred to above) will conform in all material respects to
those documents when in final form.
We have met with the senior management of the Company to discuss (i) the
prospects for the respective businesses of New ATN and ECI, (ii) their
estimates of such businesses' future financial performance, (iii) the
financial impact of the transaction as provided for by the Agreements on the
respective companies and (iv) such other matters that we deemed relevant.
In connection with our review and analysis and in arriving at our opinion,
we have assumed and relied upon the accuracy and completeness of the financial
and other information provided to us by the Company and we have not assumed
any responsibility for the verification of such information or any independent
valuation or appraisal of any of the assets or liabilities of New ATN or those
to be transformed or assumed by ECI. With respect to certain projected
financial data, provided to us by the Company for New ATN and for ECI, we have
assumed that such information (and the assumptions and bases therefor) has
been reasonably prepared and represents management's best currently available
estimate as to the future financial performance of New ATN and of ECI. Our
opinion is predicated on (i) the Company's transfer of certain of its assets
and liabilities to ECI qualifying as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and (ii) the distribution of ECI Common Stock to the holders of the Company
Common Stock being treated as a tax-free exchange for federal income tax
purposes to the Company under Section 355 (c)(1) or 361(c)(1) of the Code and
to such holders under Section 355(a) of the Code. Further, our opinion is
necessarily based on economic, financial and market conditions as they exist
and can only be evaluated as of the date hereof.
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Our opinion does not address nor should it be construed to address the
relative merits of the transaction . In addition, this opinion does not in any
manner address the prices at which New ATN Common Stock or the ECI Common
Stock will trade following consummation of the transaction.
As you know, we have been retained by the Board of Directors of the Company
to render this opinion in connection with the transaction provided for by the
Agreements and will receive a fee for such services, which fee is not
contingent upon the consummation of the transaction. In 1996, we were engaged
as the Company's financial advisor in connection with the Company's
exploration of strategic alternatives. Pursuant to our prior engagement
letter, we did not receive a fee for such services. In the ordinary course of
business we may actively trade the shares of the Company Common Stock for our
own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such security.
This letter and the opinion expressed herein are for the use of the Board of
Directors of the Company. This opinion is not intended to be and does not
constitute a recommendation to the stockholders of the Company as to how such
stockholders should vote or as to any other action such stockholders should
take regarding the transaction. This opinion may not be reproduced,
summarized, excerpted from or otherwise publicly referred to or disclosed in
any manner, without our prior written consent; except that the Company may
include this opinion in its entirety in any proxy statement relating to the
transaction sent to the Company's stockholders which we have had prior
opportunity to review.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the basic economic terms of the transaction provided for by
the Agreements is fair to the Public Stockholders of the Company from a
financial point of view.
Very truly yours,
Prudential Securities Incorporated
3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS OF ECI
LIMITATION OF LIABILITY OF DIRECTORS
The Restated Certificate of Incorporation of ECI provides that a director
will not be personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the General Corporation Law of the State of Delaware,
which concerns unlawful payments of dividends, stock purchases or redemptions
or (iv) for any transaction from which the director derived an improper
personal benefit.
While these provisions provide directors with protection from award for
monetary damages for breaches of their duty of care, they do not eliminate
such duty. Accordingly, these provisions will have no effect on the
availability of equitable remedies such as an injunction or rescission based
on a director's breach of his or her duty of care. The provisions described
above apply to an officer of the corporation only if he or she is a director
of the corporation and is acting in his or her capacity as director, and do
not apply to officers of the corporation who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation and By-Laws of ECI will provide
that each person who was or is a party or is threatened to be made a party to,
or is involved, in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the corporation or, while a
director or officer of the corporation, is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director,
officer , employee or agent, will be indemnified and held harmless by the
corporation to the fullest extent permitted by the laws of the State of
Delaware, as the same exists or may hereafter be amended, against all expense,
liability and loss (including attorneys' fees, judgments, amounts paid in
settlement, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) actually and reasonably incurred or suffered by such
person in connection therewith, and such indemnification will continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of his or her heirs, executors and administrators.
Notwithstanding the preceding sentence, the corporation will be required to
indemnify an indemnitee in connection with a proceeding (or part thereof)
commenced by such indemnitee only if the commencement of such proceeding (or
part thereof) by the indemnitee was authorized by the Board of directors of
the corporation.
ECI will be authorized to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any expense, liability or
loss incurred by such person in any such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability.
ITEM 21. EXHIBITS AND FINANCIAL DATA SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
2.1 Subscription Agreement, dated as of August 11, 1997, between Atlantic
Tele-Network, Inc. and Emerging Communications, Inc. (included in Annex A
to Proxy Statement--Prospectus).
2.2 Repurchase and Recapitalization Agreement, dated as of August 11, 1997,
among Atlantic Tele-Network, Inc., Cornelius B. Prior, Jr., individually
and as trustee of the 1994 Prior Charitable Remainder Trust, and Jeffrey
J. Prosser (included in Annex A to Proxy Statement--Prospectus).
</TABLE>
- --------
* To be filed by amendment.
II-1
<PAGE>
<TABLE>
<C> <S>
2.3 Agreement and Plan of Merger, dated as of August 11, 1997, between ATN
Merger Co, and Atlantic Tele-Network, Inc. (included in Annex A to Proxy
Statement--Prospectus)
3.1 Form of Restated Certificate of Incorporation of Emerging
Communications, Inc. (included in Annex A to Proxy Statement--
Prospectus)
3.2 Form of By-laws of Emerging Communications, Inc.*
4.1 Specimen Form of Emerging Communications, Inc.'s Stock Certificate*
4.2 Supplemental Stockholders' Agreement, dated as of December 29, 1987,
among Mr. Prosser, Mr. Prior, E.F. Hutton LBO, Inc., Atlantic Tele-
Network Co. and the Rural Telephone Finance Cooperative, as amended
April 30, 1991.*
5.1 Opinion of Cahill Gordon & Reindel with respect to the legality of the
securities registered hereby.*
10.1 Form of Employment Agreement, between Emerging Communications, Inc. and
Mr. Prosser.*
10.2 Loan Agreement, dated as of December 29, 1987, among Atlantic Tele-
Network, Co. and Virgin Islands Telephone Corporation, as Borrowers, and
the Rural Telephone Finance Cooperative, as Lender, as amended on July
7, 1989, May 10, 1990, April 30, 1991, August 21, 1991, May 18, 1994 and
June 9, 1994 (excluding exhibits).**
10.3 Guarantee and Pledge Agreement, dated as of December 29, 1987, between
Atlantic Tele-Network Co. and the Rural Telephone Finance Cooperative,
as amended on August 31, 1988.*
10.4 Telephone Loan Contract, dated as of May 15, 1990, between Virgin
Islands Telephone Corporation and the United States of America, acting
through the Administrator of the Rural Electrification
Administration.***
10.5 Supplemental Mortgage and Security Agreement, dated as of May 29, 1990,
among Virgin Islands Telephone Corporation, as Mortgagor, the United
States of America and Rural Telephone Finance Cooperative, as Mortgagee,
Vitelcom, Inc. (excluding exhibits).***
10.6 Supplemental Agreement, dated as of May 10, 1990, among Virgin Islands
Telephone Corporation, as Mortgagor, Vitelcom, Inc., and the Rural
Telephone Finance Cooperative, as Mortgagee.*
10.7 Virgin Islands Public Service Commission Order, dated April 19, 1989,
approving Settlement Order, dated April 19, 1989, among Virgin Islands
Telephone Corporation, Atlantic Tele-Network Co., the Rural Telephone
Finance Cooperative, Vitelcom, Inc. and the Virgin Islands Public
Service Commission.***
10.8 Virgin Islands Public Service Commission Order, dated November 4, 1991,
embodying the Settlement Agreement, effective as of July 26, 1991, among
Virgin Islands Telephone Corporation, Atlantic Tele-Network Co. and the
Virgin Islands Public Service Commission.***
10.9 Virgin Islands Public Service Commission Order, dated August 12, 1992,
embodying the Settlement Agreement, effective as of August 5, 1992,
between Virgin Islands Telephone Corporation and the Virgin Islands
Public Service Commission, annexed thereto.***
10.10 Settlement Agreement, dated June 22, 1993, between Virgin Islands
Telephone Corporation and the Virgin Islands Public Service
Commission.****
10.11 Memorandum of Understanding, dated as of June 23, 1993, between the
Government of the Virgin Islands, by and through its Police Department,
and Virgin Islands Telephone Corporation.****
10.12 Loan Agreement, dated as of May 29, 1990 between Atlantic Tele-Network,
Inc. and Banco Popular de Puerto Rico, as amended February 25, 1993, as
amended October 6, 1993.*
10.13 Franchise to Virgin Islands Telephone Corporation for Telephone Service
to the Virgin Islands, dated October 30, 1959.*
</TABLE>
- --------
* To be filed by amendment.
** Filed as an Exhibit to Atlantic Tele-Network, Inc.'s Registration
Statement (File No. 33-43012) and incorporated by reference herein, except
as to amendments dated May 18, 1994 and June 9, 1994, which will be filed
by amendment.
*** Filed as an exhibit to Atlantic Tele-Network Inc.'s Registration
Statement (File No. 33-43012) and incorporated by reference herein.
**** Filed as an exhibit to Atlantic Tele-Network, Inc.'s Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1993 and incorporated by
reference herein.
II-2
<PAGE>
<TABLE>
<S> <C>
10.14 Atlantic Tele-Network, Inc. Defined Plan for Salaried Employees.*
10.15 Atlantic Tele-Network, Inc. Management Employees Savings Plan.*
10.16 Atlantic Tele-Network, Inc. Employee Stock Ownership Plan.*
10.17 Line of Credit Application and Agreement, dated March 20, 1995, between Virgin Islands Telephone
Corporation, as Borrower, and Rural Telephone Finance Cooperative, as Lender.*
10.18 Line of Credit Application and Agreement, dated March 10, 1996, between Virgin Islands Telephone
Corporation, as Borrower, and Rural Telephone Finance Cooperative, as Lender.*
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Cahill Gordon & Reindel.*
23.3 Consent of Prudential Securities Incorporated (included in Annex B to Proxy Statement--Prospectus)
24.1 Power(s) of Attorney.*
99.1 Form of proxy to be mailed to shareholders of Atlantic Tele-Network, Inc.*
(b) Financial Statement Schedule.
99.2 Independent Auditors' Report on Financial Statement Schedules
99.3 Schedule I--Condensed Financial Statements of Atlantic Tele-Network Co. (Parent Company Only)
99.4 Schedule II--Valuation and Qualifying Accounts
(c) Reports, Opinions or Appraisal.
99.5 Opinion of Prudential Securities Incorporated. (included in Annex B to Proxy Statement-Prospectus)
99.6 Form of Notice of Transmittal.*
</TABLE>
- --------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
The Undersigned Registrant hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(2) That every prospectus: (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a) (3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
II-3
<PAGE>
(4) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 20, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, EMERGING
COMMUNICATIONS, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF CHRISTIANSTED, THE ISLAND OF ST. CROIX, U.S. VIRGIN ISLANDS, ON
AUGUST 12, 1997.
Emerging Communications, Inc.
/s/ Jeffrey J. Prosser
By __________________________________
JEFFREY J. PROSSER CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED ON AUGUST 12, 1997 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURES TITLE
/s/ Jeffrey J. Prosser Chairman, Chief
- ------------------------------------- Executive Officer
JEFFREY J. PROSSER and Director
(Principal
Executive Officer
and Principal
Financial Officer)
/s/ Thomas Minnich Chief Accounting
- ------------------------------------- Officer (Principal
THOMAS MINNICH Accounting Officer)
/s/ Salvatore Muoio Director
- -------------------------------------
SALVATORE MUOIO
/s/ John P. Raynor Director
- -------------------------------------
JOHN P. RAYNOR
/s/ Sir Shridath S. Ramphal Director
- -------------------------------------
SIR SHRIDATH S. RAMPHAL
/s/ John G. Vondras Director
- -------------------------------------
JOHN G. VONDRAS
/s/ Richard N. Goodwin Director
- -------------------------------------
RICHARD N. GOODWIN
II-5
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Emerging Communications, Inc. on Form S-4 of our report dated March 25, 1997,
included in the Annual Report on Form 10-K of Atlantic Tele-Network, Inc. for
the year ended December 31, 1996, and to the use of our report on Atlantic Tele-
Network Co. dated March 25, 1997 appearing in the Prospectus, which is part of
this Registration Statement and of our report dated March 25, 1997 related to
the financial statement schedules of Atlantic Tele-Network Co. appearing
elsewhere in the Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
August 11, 1997
OMAHA, NEBRASKA
<PAGE>
Exhibit 99.2
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Atlantic Tele-Network Co. and subsidiaries
We have audited the financial statements of Atlantic Tele-Network Co. and
subsidiaries as of December 31, 1996 and 1995, and for each of the three years
in the period ended December 31, 1996, and have issued our report thereon dated
March 25, 1997 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedules listed in Item 21 of this
Registration Statement. These financial statement schedules are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
Deloitte & Touche LLP
March 25, 1997
Omaha, Nebraska
<PAGE>
EXHIBIT 99.3
ATLANTIC TELE-NETWORK CO.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 1995 AND 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
- -----------------------------------------------------------------
ASSETS 1995 1996
Current assets:
Cash $ 498 $ 1,367
Other current assets 32 43
------- -------
530 1,410
Investment in subsidiaries 75,356 78,975
Other assets 2,234 2,893
------- -------
$78,120 $83,278
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 841 $ 1,845
Current portion of long-term debt 1,909 1,161
------- -------
Total current liabilities 2,750 3,006
Deferred income taxes 7 1
Long-term debt, excluding current 15,879 15,169
portion
Advances from affiliates 23,984 23,219
Contingencies and commitments
Stockholder's equity:
Common stock, par value $10 per
share; 50,000 shares
authorized and 2,000 shares issued 20 20
and outstanding
Paid-in capital 2,980 2,980
Retained earnings 32,500 38,883
------- -------
Total stockholder's equity 35,500 41,883
------- -------
$78,120 $83,278
======= =======
See note to condensed financial statements.
<PAGE>
EXHIBIT 99.3
(CONTINUED)
ATLANTIC TELE-NETWORK CO.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS)
- ------------------------------------------------------------------------
1994 1995 1996
Revenues:
Dividends received from subsidiaries $4,099 $3,597 $3,507
Advisory fees from subsidiaries 3,900 3,861 4,112
------ ------ ------
7,999 7,458 7,619
Expenses:
General and administrative 3,117 2,175 1,626
Amortization of excess of purchase
price over underlying
book value 1,032 1,032 1,032
Interest expense, net 3,631 3,970 3,600
------ ------ ------
7,780 7,177 6,258
------ ------ ------
Income from operations before income
taxes and equity
in undistributed earnings of 219 281 1,361
subsidiaries
Income tax benefit 945 803 370
------ ------ ------
Income before equity in undistributed
earnings
of subsidiaries 1,164 1,084 1,731
Equity in undistributed earnings of 3,899 3,298 3,824
subsidiaries ------ ------ ------
Net income $5,063 $4,382 $5,555
====== ====== ======
See note to condensed financial statements.
-2-
<PAGE>
EXHIBIT 99.3
(CONTINUED)
ATLANTIC TELE-NETWORK CO.
(PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
- -------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,063 $ 4,382 $ 5,555
Adjustments to reconcile net income
to net cash from
operating activities:
Equity in undistributed earnings of subsidiaries (3,899) (3,298) (3,824)
Amortization of excess of purchase price over
underlying book value 1,032 1,032 1,032
Amortization of organizational and
debt issuance costs 123 123 123
Deferred income taxes 3 - (6)
Changes in operating assets and
liabilities:
Other current assets 77 (7) (11)
Other assets (99) (122) (781)
Accounts payable and accrued expenses 609 (222) 1,004
------- ------- -------
Net cash flows from operating activities 2,909 1,888 3,092
Cash flows from financing activities:
Repayment of long-term debt (2,279) (1,988) (1,458)
Change in advances from affiliates (527) 247 (765)
------- ------- -------
Net cash flows from financing activities (2,806) (1,741) (2,223)
------- ------- -------
Net change in cash 103 147 869
Cash, beginning of year 248 351 498
------- ------- -------
Cash, end of year $ 351 $ 498 $ 1,367
======= ======= =======
Supplemental cash flow information:
Interest paid $ 3,537 $ 3,807 $ 3,474
======= ======= =======
Income taxes paid $ - $ - $ -
======= ======= =======
</TABLE>
See note to condensed financial statements.
-3-
<PAGE>
EXHIBIT 99.3
(CONTINUED)
ATLANTIC TELE-NETWORK CO.
(PARENT COMPANY ONLY)
NOTE TO CONDENSED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
- -------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT IN SUBSIDIARIES - Atlantic Tele-Network Co.'s investment in
subsidiaries is accounted for using the equity method.
-4-
<PAGE>
EXHIBIT 99.4
ATLANTIC TELE-NETWORK CO.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
BALANCE AT CHARGED TO NET BALANCE
BEGINNING COSTS AND CHARGE AT END
OF PERIOD EXPENSES OFFS OF PERIOD
<S> <C> <C> <C> <C>
Year Ended December 31, 1994:
Description:
Allowance for doubtful accounts $ 834 $546 $358 $1,022
========== ========== ====== =========
Year Ended December 31, 1995:
Description:
Allowance for doubtful accounts $1,022 $909 $305 $1,626
========== ========== ====== =========
Year Ended December 31, 1996:
Description:
Allowance for doubtful accounts $1,626 $554 $592 $1,588
========== ========== ====== =========
</TABLE>
